Chartered Market Technician (CMT) Practice Exam

A continuation gap signifies the continuation of the existing trend by indicating that the price movement is persisting in the same direction. This type of gap typically occurs during a strong trend, where prices experience a rise or fall without retracing back to previous levels. The continuation gap serves as a signal to traders that the prevailing market sentiment is still strong, and the trend is likely to continue. This can be an opportune moment for traders to enter positions in the direction of the trend, as it suggests that the price may continue to move in that direction for a time. In contrast, an exhaustion gap occurs near the end of a trend and signals a potential reversal, while a breakaway gap signifies a strong start to a new trend, typically occurring at a breakout point. A common gap is generally less significant and can occur within trading ranges, often resulting in the prices returning to fill the gap. Thus, the uniqueness of the continuation gap lies in its affirmation of the existing trend's strength and the likelihood of its continuance.