Gap - Investopedia

A gap is an area discontinuity in a security's chart where its price either rises or falls from the previous day's close with no trading occurring in ... TechnicalAnalysis TechnicalAnalysisBasicEducation Partof GuidetoTechnicalAnalysis PartOf GuidetoTechnicalAnalysis ExploreTheGuide Overview KeyTechnicalAnalysisConcepts Overview DowTheory SupportandResistanceBasics Support(SupportLevel) Resistance(ResistanceLevel) Trend Pullback Breakout Reversal Overbought Oversold RelativeStrength Candlestick Volume Gap GettingStartedwithTechnicalAnalysis Overview BestWaystoLearnTechnicalAnalysis Top7BookstoLearnTechnicalAnalysis TopTechnicalAnalysisCourses TheBestTechnicalAnalysisTradingSoftware EssentialTechnicalAnalysisStrategies Overview TechnicalAnalysisStrategiesforBeginners HowtoUseaMovingAveragetoBuyStocks HowtoUseVolumetoImproveYourTrading TheAnatomyofTradingBreakouts MarketReversalsandHowtoSpotThem TechnicalAnalysisPatterns Overview IntroductiontoTechnicalAnalysisPricePatterns 5MostPowerfulCandlestickPatterns ContinuationPattern Trendline PriceChannel Channeling:ChartingaPathtoSuccess PlayingtheGap DoubleTopsandBottoms TripleTopsandBottoms HeadAndShouldersPattern HowtoTradetheHeadandShouldersPattern Flag Pennant Triangle Wedge CupandHandlePattern TradingFibonacciRetracements ElliottWaveTheory Trader'sGuidetoUsingFractals TechnicalAnalysisIndicators Overview TechnicalIndicatorDefinition MovingAverage(MA) Crossover GoldenCrossvs.DeathCross BollingerBand® Oscillator MovingAverageConvergenceDivergence(MACD) RelativeStrengthIndex(RSI) StochasticOscillator RateOfChange MoneyFlowIndex(MFI) Divergence WhatIsaGap? Agapisanareadiscontinuityinasecurity'schartwhereitspriceeitherrisesorfallsfromthepreviousday’sclosewithnotradingoccurringinbetween.Gapsarecommonwhennewscausesmarketfundamentalstochangeduringhourswhenmarketsaretypicallyclosed,forinstanceanearningscallafter-hours. KeyTakeaways Agapisadiscontinuousspaceinthepricechartofanassetorsecurity,oftenoccurringbetweentradinghours.Therefourdifferenttypesofgaps–CommonGaps,BreakawayGaps,RunawayGaps,andExhaustionGaps-eachwithitsownsignaltotraders.Gapsareeasytospot,butdeterminingthetypeofgapismuchhardertofigureout.  WhatDoesAGapTellYou? Gapstypicallyoccurwhenapieceofnewsoraneventcausesafloodofbuyersorsellersintothesecurity.Itresultsinthepriceopeningsignificantlyhigherorlowerthanthepreviousday’sclosingprice.Dependingonthekindofgap,itcouldindicateeitherthestartofanewtrendorareversalofaprevioustrend. Gappingoccurswhenthepriceofasecurityorassetopenswellaboveorbelowthepreviousday’s close withnotradingactivityinbetween. Partialgappingoccurswhenthe openingprice ishigherorlowerthanthepreviousday’sclosebutwithinthepreviousday’spricerange.Fullgappingoccurswhentheopenisoutsideofthepreviousday’srange.Gapping,especiallyafullgap,showsastrongshiftinsentimentoccurredovernight. Sometradersmakeitastrategytoprofitfromplayingthegapwhensuchasituationoccurs. TheDifferenceBetweenDifferentTypesofGaps Therearesomefundamentaldifferencesbetweenthedifferenttypesofgaps:–CommonGaps,BreakawayGaps,RunawayGaps,andExhaustionGaps. Ingeneral,thereisnomajoreventthatprecedesthistypeofgap.Commongapsgenerallygetfilledrelativelyquickly(usuallywithinacoupleofdays)whencomparedtoothertypesofgaps.Commongapsarealsoknownas"areagaps"or"tradinggaps"andtendtobeaccompaniedbynormalaveragetradingvolume. Abreakawaygapoccurswhenthepricegapsabovea supportorresistance area,likethoseestablishedduringa tradingrange.Whenthepricebreaksoutofawell-establishedtradingrangeviaagap,thatisabreakawaygap.Abreakawaygapcouldalsooccuroutofanothertypeofchartpattern,suchasatriangle, wedge,cupandhandle, roundedbottom ortop,orheadandshoulderspattern. Arunawaygap,typicallyseenoncharts,occurswhentradingactivityskipssequentialpricepoints,usuallydrivenbyintense investor interest.Inotherwords,therewasnotrading,definedasanexchangeofownershipinasecurity,betweenthepricepointwheretherunawaygapbeganandwhereitended. Anexhaustiongapisatechnicalsignalmarkedbyabreaklowerinprices(usuallyonadailychart)thatoccursafterarapidriseinastock'spriceoverseveralweeksprior.Thissignalreflectsasignificantshiftfrombuyingtosellingactivitythatusuallycoincideswithfallingdemandforastock.Theimplicationofthesignalisthatanupwardtrendmaybeabouttoendsoon. Eachtypeofgaphascertainconsequencesfortraders.Forexample,reversalorbreakawaygapsaretypicallyaccompaniedbyasharpriseintradingvolume,whilecommonandrunawaygapsarenot.Additionally,mostgapsoccurduetonews,oraneventsuchasearningsorananalyst'supgrade/downgrade. Commongapshappenmoreregularlyanddonotalwaysneedareasontooccur.Also,commongapstendtogetfilled,whereastheothertwogapsmaysignalareversalorcontinuationofatrend. ExampleofaGap Inthehistoricalexamplebelow,Amazon.comInc.(AMZN)stockgapshigheronOctober27,2017,risingsharplyfromthepreviousdayscloseaftermonthsofsidewaysconsolidation.Thestock'sgainisaccompaniedbyamassiveincreaseinvolume,confirmingabreakawaygap.ItisthestartofanewtrendhigherinAmazon’sstock,whichgoesontorallyfrom$985to$2,050bySeptember2018. ImagebySabrinaJiang©Investopedia 2021 Inthenextexample,AlphabetInc.’s(GOOGL)chartshowsarunawaygap.Alphabet’sstockwasalreadyincreasinginApril2017whenitgappedsharplyhigher,continuingitspreviousuptrend. ImagebySabrinaJiang©Investopedia 2021 LimitationsofGaps Therearelimitationsdespitegapsbeingeasytospot.Theglaringflawisone'sownabilitytoidentifythedifferenttypesofgapthatoccur.Ifagapismisinterpreted,itcouldbeadisastrousmistakecausingonetomissanopportunitytoeitherbuyorsellasecurity,whichcouldweighheavilyonone'sprofitsandlosses. ArticleSources Investopediarequireswriterstouseprimarysourcestosupporttheirwork.Theseincludewhitepapers,governmentdata,originalreporting,andinterviewswithindustryexperts.Wealsoreferenceoriginalresearchfromotherreputablepublisherswhereappropriate.Youcanlearnmoreaboutthestandardswefollowinproducingaccurate,unbiasedcontentinour editorialpolicy. YahooFinance."Amazon.com,Inc.(AMZN)."TimePeriodJul30,2017-Sep20,2018ClickApply.AccessedAug.8,2021. YahooFinance."AlphabetInc.(GOOGL)-HistoricalData."TimePeriodApr09,2017-May30,2017ClickApply.AccessedAug.8,2021. 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Provider Name Description PartOf GuidetoTechnicalAnalysisGuide TechnicalAnalysisofStocksandTrends 1of55 HowtoUsetheDowTheorytoAnalyzetheMarket 2of55 SupportandResistanceBasics 3of55 Support(SupportLevel)Definition 4of55 Resistance(ResistanceLevel) 5of55 TrendDefinitionandTradingTactics 6of55 Pullback 7of55 Breakout 8of55 Reversal 9of55 Overbought 10of55 OversoldDefinition 11of55 RelativeStrength 12of55 Candlestick 13of55 VolumeDefinition 14of55 GapDefinition 15of55 TheBestWaystoLearnTechnicalAnalysis 16of55 Top7BookstoLearnTechnicalAnalysis 17of55 BestTechnicalAnalysisCoursesin2022 18of55 TopTechnicalAnalysisToolsforTraders 19of55 TechnicalAnalysisStrategiesforBeginners 20of55 HowToUseaMovingAveragetoBuyStocks 21of55 HowtoUseVolumetoImproveYourTrading 22of55 TheAnatomyofTradingBreakouts 23of55 MarketReversalsandtheSushiRollStrategy 24of55 IntroductiontoTechnicalAnalysisPricePatterns 25of55 The5MostPowerfulCandlestickPatterns 26of55 ContinuationPatternDefinition 27of55 TrendlineDefinition 28of55 WhatIsaPriceChannel 29of55 Channeling:ChartingaPathtoSuccess 30of55 PlayingtheGap 31of55 DoubleTopandBottomDefinition 32of55 TechnicalAnalysis:TripleTopsandBottoms 33of55 WhatIsaHeadandShouldersPattern? 34of55 HowtoTradetheHeadandShouldersPattern 35of55 FlagDefinition 36of55 PennantDefinition 37of55 TriangleDefinition 38of55 WhatIsaWedgeinTechnicalAnalysis? 39of55 WhatIsaCupandHandlePattern? 40of55 StrategiesforTradingFibonacciRetracements 41of55 WhatIstheElliottWaveTheory? 42of55 ATrader'sGuidetoUsingFractals 43of55 TechnicalIndicatorDefinition 44of55 MovingAverage(MA)Definition 45of55 CrossoverDefinition 46of55 GoldenCrossvs.DeathCross:What'stheDifference? 47of55 WhatIsaBollingerBand®inTechnicalAnalysis? 48of55 OscillatorDefinition 49of55 MovingAverageConvergenceDivergence(MACD) 50of55 RelativeStrengthIndex(RSI) 51of55 StochasticOscillator 52of55 PriceRateOfChangeIndicator-ROC 53of55 MoneyFlowIndex-MFIDefinitionandUses 54of55 DivergenceDefinitionandUses 55of55 RelatedTerms WhatIsGapping? Gappingoccurswhenastock,oranothertradinginstrument,opensaboveorbelowthepreviousday’sclosewithnotradingactivityinbetween. more CommonGap Commongapisapricegapfoundonapricechartforanasset.Thesegapsarebroughtaboutbynormalmarketforcesandareverycommon. more WhatIsaRunawayGap? Arunawaygap,typicallyseenoncharts,occurswhentradingactivityskipssequentialpricepoints,usuallydrivenbyintenseinvestorinterest. more ExhaustionGapDefinition Anexhaustiongapisagapthatoccursafterarapidriseinastock'spricebeginstotailoff. more IslandReversalDefinition Anislandreversalisacandlestickpatternthatcanhelptoprovideanindicationofareversal. more UpsideTasukiGap AnUpsideTasukiGapisacandlestickformationthatiscommonlyusedtosignalthecontinuationofthecurrenttrend. more PartnerLinks RelatedArticles TechnicalAnalysisBasicEducation IntroductiontoTechnicalAnalysisPricePatterns Beginners PlayingtheGap TechnicalAnalysisBasicEducation TweezersProvidePrecisionforTrendTraders TechnicalAnalysisBasicEducation TalesFromtheTrenches:TheRisingWedgeBreakdown TechnicalAnalysisBasicEducation UsingBullishCandlestickPatternsToBuyStocks TechnicalAnalysis UnderstandingaCandlestickChart