Gap
A gap is an empty space on a chart where no trading occurred between two candles. Price jumps from one level to another, leaving a visible gap. Gap up: opens above previous close. Gap down: opens below previous close.
Understanding the Concept
Gaps reveal major shifts in sentiment—often from news, earnings, or overnight developments. There's an old saying: "gaps get filled," meaning price often returns to close the gap later. But not always. Breakaway gaps start new trends and don't fill quickly. Exhaustion gaps near the end of trends fill fast. Common gaps in consolidation zones fill quickly and mean little. Learning to read gap types helps you anticipate what's coming. Gap and go strategies trade the continuation; gap fill strategies bet on reversal.
Real-World Example
Tesla reports earnings after hours. Stock closed at $200, opens next day at $230—a $30 gap up. Traders either buy the momentum (gap and go) or short expecting the gap to fill back toward $200.
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