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Technical Analysis
Gap
Definition
A discontinuity in price where the stock opens significantly above or below the previous day's close, leaving a "gap" on the chart.
Why It Matters
Gaps reveal overnight sentiment shifts. A gap up on news shows strong demand; a gap down shows panic. Gaps often get "filled" — price returns to the gap level. Understanding gap behavior helps with entry and exit timing.
Real Example
A stock closes at $10. After hours, positive news hits. It opens at $13 — a 30% gap up. Traders watch whether the gap holds (sustained demand) or fills (profit taking). A gap fill to $10 could be a buying opportunity if the catalyst is still valid.