Gap Analysis

Overview

A gap is a price range in which no trades occurred — opening between the previous bar's high and the next bar's low, or the previous low and the next bar's high. The Japanese term is mado ("window"); the English is "gap".

Gaps most often open between yesterday's close and today's open. When the market reopens after a weekend, an overnight, or a holiday, and participants' assessments have shifted enough, price jumps. A gap is the record of a discontinuity in consensus — "yesterday's price is no longer in anyone's head".

Four kinds are distinguished by their meaning. Common (the unremarkable gap inside a range), breakaway (the gap that launches a new trend out of consolidation), runaway (the gap that accelerates mid-trend), and exhaustion (the final outburst near the end of a trend). Position and volume separate the kinds.