Price Gaps and How to Trade Them

A price gap is an empty space on a chart where no trading happened: the price jumps from one candle's close to the next candle's open without trading in between. Gaps are common on daily stock charts because news arrives while the market is closed. They show sudden shifts in supply and demand, and different types of gaps carry different meanings.

Gap up and gap down#

• Gap up: the next candle opens above the previous candle's high.
• Gap down: the next candle opens below the previous candle's low.

Many traders also count partial gaps, where the open is beyond the previous close but within the previous range.

The four classic gap types#

The same size gap can mean very different things depending on where it occurs. Context and volume decide.

Gap fills#

A gap is filled when price later trades back through the gap area to the previous close. A popular saying claims "gaps always get filled," but that is not true; breakaway and runaway gaps can stay open for a very long time. Common gaps fill most often.

Trading gaps#

Gap and go#

On breakaway gaps with a clear catalyst and heavy volume, traders buy early strength, such as a break of the first 5 or 15 minute high, with a stop below the opening range or the gap's midpoint. See Session, Weekly and Monthly Levels.

Gap fill fade#

On common gaps without news, especially into resistance or support, traders fade the move towards the previous close, with a stop beyond the opening extreme.

Waiting for the gap to hold#

Many swing traders wait a day or two to see whether a breakaway gap holds. If price stays above the gap, the old resistance often becomes support. See Role Reversal and Retests.

Exhaustion gap reversals#

After an extended move, a gap that is quickly reversed, closing back below the gap, can signal the end of the trend. Confirmation from the next candles is essential.

Gaps and risk#

Gaps are the main reason stop orders sometimes fill far beyond their price. If a stock closes at $50 and opens at $44 after bad news, a stop at $48 fills near $44. Holding positions through earnings and major events exposes you to this. Size positions so a gap through your stop is survivable. See Stop Orders and Earnings Trading.

Gaps in different markets#

• Stocks: daily gaps are frequent around earnings and news.
• Futures: trade nearly around the clock, so daily gaps are smaller, but weekend gaps occur.
• Forex: weekend gaps at the Sunday open.
• Crypto: trades continuously, so true gaps rarely appear on exchange charts, though CME Bitcoin futures charts show weekend gaps that some traders watch.
• Fair value gaps: in smart money concepts, a gap between candle wicks within continuous trading is called a fair value gap. See Fair Value Gaps.

Common mistakes#

• Assuming every gap fills.
• Fading breakaway gaps on big news.
• Holding oversized positions through events that can gap prices.

Frequently asked questions#

What is a gap in trading?#

A jump in price between one candle's close and the next candle's open, leaving an empty space on the chart where no trades occurred.

Do gaps always fill?#

No. Common gaps often fill, but breakaway and runaway gaps can remain open for long periods.

Why do stocks gap up or down?#

Usually because of news, earnings or market events that occur while the market is closed, shifting supply and demand before the next open.

Next, start the Indicators track with Moving Averages Explained.