Gap (Price Gap)

A gap is a price area on a chart where no trading occurred, creating a visible break between the closing price of one session and the opening price of the next. Gaps typically occur due to after-hours news such as earnings reports, analyst upgrades/downgrades, FDA decisions, or macroeconomic events. There are four main types: breakaway gaps (signaling the start of a new trend), runaway/continuation gaps (occurring mid-trend), exhaustion gaps (near the end of a trend), and common gaps (occurring in sideways markets with no significance). "Gap up" means the stock opens higher than the previous close; "gap down" means it opens lower. Technical analysts watch whether gaps "fill"—meaning the price eventually returns to the pre-gap level. Studies show that most common gaps fill within days or weeks, while breakaway gaps often don't fill for extended periods. Gap trading strategies include fading the gap (betting it will fill) and trading with the gap (momentum continuation).