Gap Up / Gap Down

When a stock opens significantly higher or lower than its previous closing price.

What Is a Gap?

A gap occurs when a stock opens at a significantly different price than where it closed the previous day, creating a visible "gap" on the chart. A gap up opens higher; a gap down opens lower.

Earnings Gaps

The most common cause of gaps is earnings reports. A company that beats earnings after the close might gap up 5-10% at the next morning's open. A miss might cause a 10-20% gap down. These earnings gaps are among the most dramatic events in stock trading.

Types of Gaps

• Breakaway gap: Signals the start of a new trend. Often occurs on high volume after earnings beats.
• Continuation gap: Occurs in the middle of a trend, confirming its direction.
• Exhaustion gap: Occurs near the end of a trend and often reverses.

Do Gaps Fill?

There's a common belief that "gaps always fill" — meaning the stock will eventually return to pre-gap levels. While this is true for many gaps, earnings breakaway gaps on high volume often do NOT fill, especially when accompanied by strong guidance.