A continuation gap occurs in the midst of a powerful trend, which continues to reach new highs or new lows without filling the gap. It is similar to a breakaway gap but occurs in the middle of a trend rather than in the beginning. Continuation gaps show a new surge of power among the dominant market crowd.A continuation gap can help you estimate how far a trend is likely to carry. Measure the vertical distance from the beginning of a trend to the gap, and then project it from the gap in the direction of the trend. When the market approaches that target, it is time to begin taking profits.
Volume confirms continuation gaps when it jumps at least 50 percent above the average for the previous few days. If prices do not reach new highs or new lows for several days after a gap, you are probably dealing with a treacherous exhaustion gap.