What is a Breakout Pattern?

Occurs when a) Current bar's low is higher than the previous bar's high in an uptrend or b) Current bar's high is lower than the previous bar's low in a downtrend. This is caused by some type of exuberance in driving the stock to create a gap between the extremes of the previous bar and the current bar. Examples include some important news (good or bad) after the market has closed or even economic news or some other stimulus that accounts for the exuberance.

Breakaway Gaps

Usually occur after the breakout from a consolidation region. It generally identify the start of a strong trend, where high volume typically follows the occurrence of a gap. The strong trend usually continues long enough for several new highs or lows to occur after the gap.

Continuation/Runaway Gaps

Occurs in the middle of a strong trend, whereby after a runaway gap, prices continue to make new highs or lows without pulling back to close the gap. They often appear halfway through the move. Volume after the occurrence of the gap is usually high.

Exhaustion Gaps

Excessively wide gaps that occur at the end of a trend. They tend to occur on high volume like the "last gasp" at the end of a trend. Generally not followed by many new highs, frequently enter a consolidation period and gap closes very quickly (usually within 5 bars or so).