Gaps & island reversals

What a gap is

A gap is a jump on the chart where price opens far from the previous close, leaving an empty space no candle traded through. Gaps happen on news, earnings, or weekend moves. They are not random — *where* a gap appears tells you what it means. There are three types.

The island reversal

Combine two gaps and you get an island reversal: price gaps UP, trades sideways for a few candles, then gaps DOWN — leaving that little cluster stranded above the chart like an island, with empty space on both sides. (The mirror gaps down, then up, for a bottom.) It is a violent, high-conviction reversal: everyone who bought the island is instantly trapped. Trade in the direction of the second gap, with a stop on the other side of the island.

• A gap = empty space where price jumped; location gives its meaning.
• Breakaway (starts a move) and runaway (mid-trend momentum) tend to hold.
• Exhaustion gap (end of a move) usually fills fast — a reversal warning.
• Island reversal = a cluster isolated by two opposite gaps — a sharp, reliable turn.