What it means
Stocks gap often on overnight news and earnings; futures and forex mostly over weekends. Gaps often fill, but not always. Not to be confused with a fair value gap.
In practice
A gap shows that opinion changed while the market was closed, so the first trade came at a new price. Traders note the edges of the gap as levels: an opening gap that holds often acts as support or resistance later in the session.
The context separates the types. A gap out of a long range that keeps going shows new interest, while a gap late in an extended move can mark its final burst.
What to watch for
The idea that gaps always fill is not reliable enough to trade on its own: some fill the same day, some take months and some never do. Gaps are also where stop-losses fill far from their price.
Related terms
3 terms- Fair value gapFVGA three-candle gap where candle 1's wick and candle 3's wick don't overlap, left by a fast move.
- EarningsA company's quarterly results; the forecast for next quarter (guidance) often moves the stock most.
- NDOG and NWOGFutures gaps between the 5 pm close and the 6 pm reopen (NDOG), or between Friday's close and Sunday's open (NWOG).