What Is a Gap in Trading — And How to Trade It
Gaps appear on every chart and every timeframe. Understanding what causes them and which ones to trade is a foundational technical analysis skill.
Technical Analysis · July 2, 2026 · 5 min read
A gap occurs when a price opens significantly above or below the previous session's close, leaving a visible space on the chart with no trading activity between the two prices. Gaps happen because news, earnings reports, or other events occur outside of regular trading hours — and when the market opens, the new price reflects the changed information. On daily charts, gaps appear between one day's close and the next day's open. On intraday charts, they appear between sessions or after major news events.
Types of Gaps
Common gap — occurs in normal trading conditions with no special significance, often fills quickly. Breakaway gap — occurs when price gaps out of a consolidation range or above/below a key level on high volume, signaling the start of a new trend. Runaway gap (continuation gap) — occurs in the middle of a strong trend, confirming momentum. Exhaustion gap — occurs near the end of a trend on declining volume, often the last gasp before a reversal. Each type requires a different trading response. Breakaway gaps are the most tradeable and highest conviction.
Do Gaps Fill?
The common market saying is 'gaps always fill.' This is approximately true but meaningfully wrong in its absoluteness. Studies suggest that roughly 70–75% of gaps do eventually fill — meaning price returns to the pre-gap level. But 'eventually' can mean days, weeks, or years. Trading the expectation that a gap will fill without considering the timeframe, direction of the underlying trend, and news catalyst is a strategy that works sometimes but ignores too many relevant factors to be reliable. Breakaway gaps on high-volume news often don't fill for months.
How to Trade Gaps
Fade strategy (trading the fill): sell a gap-up open when the stock shows early weakness and momentum fades, targeting the previous close. Works best on low-volume gaps in rangebound markets with no significant catalyst. Continuation strategy: buy the gap-up after a brief consolidation, trading with the new direction. Works best on breakaway gaps with a strong catalyst (earnings beat, merger announcement) and high volume. In both cases, define your stop before entry — gaps create volatile conditions where prices can move sharply against you before the setup resolves.
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