A gap refers to a price level where no trading activity occurs between two consecutive sessions, creating a visible jump on a price chart. Gaps often happen due to overnight news, earnings announcements, or major economic events that shift market sentiment. There are different types of gaps (common, breakaway, runaway, and exhaustion) each with distinct implications. Gaps can act as support or resistance levels and are frequently used in technical analysis to anticipate future price movements. Traders often look for “gap fills,” where the price retraces to cover the gap, using it as part of short-term trading strategies.
Example:
A company’s shares close at $80 and open the next day at $85 following positive earnings news.
