Gap

When a stock’s opening price is signifcantly higher (lower) than the previous day’s high (low) and no trading has occured between those prices. A gap occurs when the amount of buyers tremendously outnumber sellers or vice versa and forces prices to go up (or down) a large amount overnight. A gap may occur due to earnings releases, analyst upgrade/downgrades, or other unexpected events like an SEC investigation.

When the price of a stock falls (or rises) back to where the gap occured, it is known as being “filled”.

According to “Technical Analysis of Stock Trends”, there are four types of gaps, breakout gaps, runaway gaps and common gaps. Common gaps are mostly uneventful and small in magnitude. The other gaps will be covered in their respective definitions.