Exhaustion Gap

Categories: Charts, Metrics

Technical analysis is a method for trading stocks that looks at the pattern left by the moment-to-moment price movements of a security. You look at the stock chart alone, not at anything related to the company's underlying finances...just the stock chart. You then use that to determine what the price will do next.

One aspect technical analysts use is called a "gap." This chart pattern takes place when a security experiences a big, quick move in price. One moment, the stock has one price. The next moment, the price is notably higher (or notably lower). There's a gap between one price and the next.

An exhaustion gap takes place when a stock that's been rising sharply starts to slow its ascent. The buying interest has become exhausted. It usually means that demand has petered out, and the upward move will soon level off, and probably retrace some of the gains.

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