Case Study: Exhaustive Gap vs Continuation GapNetflix, Inc.NASDAQ:NFLXJoeRodTradesTLDR Wait 4 days after a gap, did it trade back into gap area? Yes, it is has the potential to be an exhaustive gap. No, look for a continuation for the next 12-14 days. Background In this post, I want to discuss the difference between an exhaustive gap and a continuation gap. The concept is not new, it was first seen in H.M. Gartley's Profits in the Stock Market (1935) and Edwards & Magee's Technical Analysis of Stock Trends (1948). The idea was later brought back to trading back Linda Raschke as trading floor lore with the claim that it works "90% of the time." Chart Breakdown In this chart we see that NFLX is gapped down and within 4 days it began trading back into the gap. The shows that before it gapped, it made a new low then trapped bulls that were buy that dip and riding a new momentum high. It did this by making a second low. The 3/10 oscillator shows that divergence at the new low to further support the exhaustive gap theory. How to trade Wait 4 days, if the gap is traded into, then we use this information it find reasons to get long on a lower timeframe. For me, I use the Adam Grimes pullback trade that is posted all over my content. If there is a continuation (not trading into the gap), I look for reasons to get short. The trade can be used on the daily or intraday time frames depending on your style. Look for the gap to get filled if 4 days of trading brings it back into the gap. Look for a continuation otherwise. Conclusion This gives us a framework to trade within. Some that is easily identified on a daily chart that can be used for swing trading or day trading. It provides a highly accurate way of reading a chart that can then be turned into a trading plan.