Price gap
Family VI · Charts & indicators
Not to be confused with price action, price channel.
Price gap is a discontinuity on a price chart where the opening price of one period differs from the closing price of the previous period, leaving an empty range with no trades recorded. Gaps appear as blank spaces between consecutive bars or candles, and their size and frequency vary by instrument, session and market liquidity. They are most common when markets reopen after a closure, such as overnight or over a weekend.
How gaps form
A gap forms when the first traded price of a new period is different from the last traded price of the previous period. Because no transactions occur at prices inside the gap, the chart shows a jump from one level to the next.
Common causes include:
- Overnight news or earnings released while the market is closed.
- Weekend or holiday closures in markets that trade on a session schedule.
- Low liquidity, where a single order can move the price sharply.
- Economic data or central-bank announcements released between sessions.
Gaps can be upward or downward. An upward gap occurs when the new opening price is above the previous close; a downward gap occurs when it is below.
Worked example
A stock closes at 50.00 on Monday. Before Tuesday's open, the company reports better-than-expected earnings. The first trade on Tuesday executes at 53.00.
The gap is the 3.00 range between 50.00 and 53.00, where no trades took place. The gap size is the difference between the two prices, not a percentage unless expressed as one.
Interpretation and limits
Some traders treat a gap as a sign of strong directional pressure, while others expect the price to revisit the gap area, a tendency often called filling the gap. Neither outcome is guaranteed.
Gap behaviour varies by market. Instruments that trade nearly continuously, such as major currency pairs, may show few or no gaps, while individual stocks and futures often gap after scheduled closures. Whether a gap is filled, and how quickly, depends on the instrument, the news behind it and overall market conditions.
Often confused with
- price action
- Price action is the study of price movement itself, including bars, candles and patterns, whereas a price gap is a specific discontinuity between two periods; the visible sign is a blank space on the chart between one period's close and the next period's open.
- price channel
- A price channel is a pair of parallel trendlines that contain price movement over time, while a price gap is a one-off jump between periods; the visible sign is two sloping lines forming a corridor rather than an empty vertical space between bars.
See also
- forex technical analysis indicators
- price action
- fundamental analysis
- support and resistance
- technical analysis
- fibonacci