Gaps

What is a gap?

A gap is defined as a price level on a chart where no trading occurred. These can occur in all time frames but they are more common with the daily chart.
A gap on a daily chart happens when the stock closes at one price but opens the following day at a different price. This happens because buy or sell orders are placed before the open that cause the price to open higher or lower than the previous day's close.

Gap Up

In a bullish trend, a gap up happens when the market opens at a higher price than the previous closing price leaving a ‘gap’ in prices which has not been filled during the day.

Gap down

In a bearish trend, a gap down happens when the market opens at a lower price than the previous closing price leaving a ‘gap’ in prices which has not been filled during the day

What does ‘filling the gap’ mean?

A gap is filled when a stock has traded at a price level of a previous gap. 

Here is a chart example:

Types of gaps

  •  Breakaway Gaps - This type usually occurs after a consolidation or some other price pattern. A stock will be trading sideways and then all of sudden it will "gap away" from the price pattern.

 

  • Continuation Gaps - Sometimes called runaway gaps or measuring gaps, these occur during a strong advance in price.

 

  •  Exhaustion Gaps - This type of gap occurs in the direction of the prevailing trend and represents the final surge of buying or selling interest before a major trend change.