What Is a Gap Up / Gap Down?
A stock closes at $10 and opens at $13, with nothing in between. That jump is a gap. Here's what causes it, the difference between a gap that runs and one that fills, and whether gaps really always fill.
The Simple Definition
A gap is when a stock opens at a materially different price than it closed, with no trading in between. A gap up opens higher; a gap down opens lower.
On the chart it looks like an empty space, literally a gap, between yesterday's close and today's open.
Why Gaps Happen
Gaps are the daytime echo of overnight news. A catalyst, earnings, an FDA decision, a buyout, hits while the market is closed, and buying or selling builds up in extended hours until the stock opens at a new price. The bigger the surprise, the bigger the gap.
Gap and Go vs Gap Fill
The stock gaps and keeps running, the catalyst is strong enough that buyers keep pressing. The gap does not fill.
The stock reverses and trades back to the prior close, “filling” the empty space. Common when the overnight move overshot.
Do Gaps Always Fill?
“Gaps always fill” is a popular saying and it is not a rule. Strong catalysts produce gaps that never fill; weak or over-extended ones fill fast. Whether a specific gap fills or goes is not knowable in advance, it depends on how real and how surprising the catalyst was. Use the gap to find where something happened, then let the catalyst and the tape decide. Not financial advice.
Frequently Asked Questions
What causes a stock to gap?
A catalyst that hits while the market is closed, most often earnings or news released after the close or before the open. Enough buying or selling builds up overnight that the stock opens at a very different price than it closed, with no trades in between.
What is a gap fill?
When a stock trades back to its previous close, "filling" the empty space on the chart the gap left. Many gaps fill because the overnight move overshot; the return trade is called the fill.
What does gap and go mean?
A gap and go is when a stock gaps up and keeps running instead of filling, the catalyst is strong enough that buyers keep pressing. The opposite of a gap that fades back to fill.
Do gaps always fill?
No. It is a common belief but not a rule. Strong catalysts (a buyout, a blowout quarter) produce gaps that never fill, while weak or over-extended ones fill quickly. Whether a specific gap fills or goes is not predictable in advance.
How do I find gapping stocks?
Use a gap scanner that ranks the biggest overnight gaps, then check the catalyst and premarket volume. TheDesperateTrader has a gap scanner and premarket movers list.
Find Gapping Stocks
The biggest overnight gaps, ranked, before the open.
Discussion
Sign in to ask a question or join the discussion.