Price Gaps

Price jumps right over a stretch

Today's low is above yesterday's high, and no trades happened at the prices in between: that's an upside gap. It usually happens at the open, when overnight news pushes the first trade away from yesterday's prices.

Type depends on location

A common gap inside a range, a breakaway gap out of a range, a runaway gap mid-trend, an exhaustion gap at the end of a sharp rally: they look the same, but what they mean depends on where they appear and the volume.

Fill or no fill?

When price moves back into the gap, that's a gap fill. Common and exhaustion gaps often fill quickly; breakaway gaps often don't. But these are only tendencies: no gap "must" fill.

Key takeaways

• Gap up: today's low is above yesterday's high, and nothing traded in between. A gap down is the reverse.
• Common gaps often appear within a trading range and usually fill quickly; breakaway gaps burst out of a range on high volume and often don't fill right away.
• Runaway gaps appear mid-trend; exhaustion gaps appear at the end of a sharp rise or fall and soon fill, hinting the trend may be running out of steam.
• Gap types are often clear only in hindsight. Use location and volume to judge, but no gap is "sure" to fill or not fill.

Try it yourself

You can do these exercises in this lesson's interactive simulation:

1. Choose "Small gap inside a range" and press ▶. When it pauses, check "Volume ratio on gap day" and "Location": do you think it'll fill quickly? On which bar did it fill?
2. Switch to "Breaks out of the range on heavy volume": what's the volume ratio on the gap day? Did price ever come back into the cyan gap zone?
3. Compare "Breaks out of the range on heavy volume" with "Gap at the end of a sharp rally": both came on huge volume, so why do they end in opposite ways? The key clue is in "Location."
4. Guess all four scenarios and aim for "4 / 4 correct." Afterwards, check whether the trend continued after the "Gap mid-trend."

Quiz and explanations

1. Yesterday's high was $50. Today opens at $52 with a daily low of $51.5. This is…

Answer: A gap up, with nothing traded between $50 and $51.5.Today's low is above yesterday's high, leaving a blank space in between.

2. A small gap appears in the middle of a sideways range on ordinary volume, and a few days later the price moves back into it. It most resembles…

Answer: A common gap.Inside a range, ordinary volume, filled quickly: classic signs of a common gap.

3. A stock gaps up on high volume out of a 3-month consolidation range and doesn't fill over the next few days. It most resembles…

Answer: A breakaway gap.High volume + bursting out of a range + not filling are signs of a breakaway gap, though it could still fail later, so keep watching.

Terms in this lesson

• breakaway gap (Breakaway Gap): Price gaps out of a range or pattern boundary on heavy volume, often starting a new trend, and usually doesn't fill right away.
• common gap (Common Gap): A small gap inside a trading range on ordinary volume; it usually fills quickly and doesn't mean much.
• exhaustion gap (Exhaustion Gap): A high-volume gap at the end of a sharp rally or drop that fills soon after, hinting the trend may be running out of steam.
• gap (Gap): When price jumps to a new level between sessions without trading at the prices in between.
• gap fill (Gap Fill): After a gap, price returns to the other side of it, trading through the prices that were skipped.
• runaway gap (Runaway Gap): A gap in the middle of a trend, showing the trend is still accelerating; also called a continuation gap.