A gap is a jump in price with no trading in between — a visible "hole" on the chart. Gaps are common in stocks and indices, and traders have built whole approaches around them. Here's the grounded version.
What causes a gap
Markets that close overnight (stocks, F&O) accumulate news while shut. When they reopen, price can open well above or below the prior close — leaving a gap. Earnings, economic data and overnight global moves are common triggers.
Common gap types
- Breakaway gap — price gaps out of a range or pattern, often starting a new trend.
- Continuation gap — appears mid-trend as the move accelerates.
- Exhaustion gap — a final lurch near the end of a move, often followed by reversal.
These labels are clearest in hindsight — be honest about that.
"Gap fill"
A popular idea is that gaps tend to "fill" — price returns to the pre-gap level. Sometimes true, often not, and when it happens varies wildly. Trading purely on "the gap will fill" without a plan is a good way to fight a strong trend.
Trading gaps sensibly
- Let the open settle — the first minutes after a gap are chaotic, with wide spreads and slippage. Don't trade the spike.
- Use levels — trade the reaction at clear support/resistance, not the gap alone.
- Mind gap risk on your stops — a stop-loss can be jumped by a gap, filling worse than planned. Size for it.
A gap is the market repricing while you slept. Trade the reaction to it with a plan — not the gap as a guarantee.
Education only — not financial advice.