Usually, when we put the word “runaway” in front of a noun, it doesn’t connote good things. Runaway children: not good. Runaway train: also not good. Runaway bride: well, maybe it’s good for the bride, but the groom likely doesn’t feel as good about the situation.
But a runaway gap is different. A “runaway gap” is a stock price change of 5% or more that occurs in the same direction the stock is trending, which isn’t necessarily a bad thing. It can be, but it doesn’t have to be.
It all usually starts with a trend change. All of a sudden, Mellow Motors stock, which had been in the tank lately, slowly starts creeping upward. As more investors take notice, the stock goes up farther, and this time it happens faster. Then the floodgates open and investors swarm in, buying Mellow Motors stock like crazy, causing the price to jump a good 6% all at once. That jump right there is a runaway gap, and if a stock is really on a roll, we might see several of them happen one right after the other, like lightning strikes. On a candlestick chart, they look like—believe it or not—a gap. Like...it kind of looks like the pen jumped the page.
Of course, those lightning strikes can also go the other way. Remember—a runaway gap tells us that a trend is intensifying. So if something happens at Mellow Motors that causes its stock to go into freefall, it wouldn’t be outside the real of possibility to see several more runaway gaps, one right after the other, but heading downward instead of up.
