From Traderpedia

A break in price continuity between two points in time indicative of a price where no trading occurred.

Gaps are also known as 'Rising Windows' or Falling Windows' in Japanese Candlestick charting.

An opening 'gap up' is when stock/index starts a new trading sessions at a higher price than the previous days close. An opening 'gap down' is the reverse of this - when the stock/index opens the day lower than the preivous close. They are especially significant when coupled with an increase in volume.

A 'gap up' can also be referred to as a 'Rising Window' and is a bullish indication. Conversely a 'gap down' or 'Falling Window' can have bearish relevance.

Gaps come in three different kinds - Breakaway Gaps, Exhaustion Gaps, or Runaway Gaps (sometimes also known as Continuation Gaps).


[edit] Breakaway Gap

This usually occurs after the conclusion of a major price pattern and precedes the start of the next price movement. It signals potential change in the trend and is more significant when accompanied by increased volume.

[edit] Exhaustion Gap

This takes place at the end of an upward or downward trend and signals the conclusion of that particular movement. For an Exhaustion gap to be a signal the price should reverse shortly after the gap and it should be filled by new price movement almost immediately.

[edit] Runaway Gap

This is sometimes also known as a 'Continuation Gap' and will appear mid way through a strong upward or downward trend.

All types of gaps in a market price can act as areas of support or resistance to future market movement.

[edit] See also

Gap and trap