![]() Resistance functions the same way, albeit at the opposite end of the spectrum. For example, investors may think that $20 per share is too high for Zima stock, but at $2 per share, enough of them will purchase the stock to keep the price from sinking any lower. Support is defined as the point where a downtrend in the price of a stock will stop, because the price point is now low enough that increased demand for the stock at that price keeps it from falling any lower. Many gaps are filled by price correction, where investors have over or undervalued a stock before the market moves to “correct” that overvaluation.Īnother important reason why a filled gap may occur is due to the concepts of support and resistance. Gaps can become filled for several reasons. Once the stock hits that $32 per share mark, the gap has officially been filled. For example, imagine a stock was trading at $32 per share before an overnight gap down occurred, dropping the price down to $27 per share.Īfter a few weeks, the stock’s price recovers and begins trading at $32 per share again. A gap becomes “filled” when its price returns to the original, pre-gap level. Interested gap traders will frequently run into discussions of “filled” gaps, causing confusion for newer traders. Because these catalysts tend to occur when the stock market is closed for the day, it results in gaps appearing once markets reopen. So what exactly causes a gap? Typically, a gap occurs because of an outside catalyst – an earnings report, new senior executive appointment, upgrades or downgrades in ratings, or a news item that affects a company’s prospects. This physical gap on the chart reflects that the opening price for a stock is higher or lower than the closing price. ![]() The body of the candlestick shows the day’s opening and closing prices for the share, while the “shadow” at either end shows the highest and lowest prices that the stock sold for during the course of the day. On a price chart, a stock’s daily price range is frequently shown by a graphical figure referred to as a candlestick. That said, intraday gaps are far less common than gaps that develop overnight or over the weekend, particularly for certain types of assets, like Forex. Those intraday gaps typically develop because of a discrepancy between the number of buyers and the number of sellers, which create the conditions for a gap to occur. Just as prices can go up and down, gaps can either be a “gap up,” meaning that the price has increased, or a “gap down,” where the price has fallen.Īlthough gaps tend to occur when markets are closed, they are possible during the regular trading day. Because the stock market can be volatile, gaps occur regularly, typically appearing after markets have been closed.Ī gap occurs when a stock opens at a price that is different to what it closed with the previous day, reflecting an unexpected change in price overnight. Whether you are looking to start gap trading or simply interested in a more focused approach to active investing, gap trading can offer interesting insights and systems to help us become more deliberate investors.Ī gap is an area on a price chart where a share’s price has moved sharply up or down with no trading activity in between. ![]() We’ll cover real life examples and highlight some easy and potentially beneficial strategies that gap traders employ. Never fear – in this article, we’re covering the basics of what a gap is, why they occur, and how traders can potentially benefit from using them to inform their stock trades. It can be a challenge to wade through the technical jargon, ambiguous vocabulary, and get-rich-quick schemes that litter the internet with promises of becoming a millionaire while working two hours a day. Gaps seem to occur all the time – just look at Gap Inc.’s recent 19% gap down.īut if you dig further, the topic can get really confusing, really quickly. More importantly, gap trading seems to offer a way to take advantage of the stock market’s natural volatility. Gap trading can sound amazing – high returns in a short period of time, accomplished using clear rules and conditions that seem to take the guesswork out of investing. Click here for a full list of our partners and an in-depth explanation on how we get paid. Our company, Tokenist Media LLC, is community supported and may receive a small commission when you purchase products or services through links on our website. Neither our writers nor our editors receive direct compensation of any kind to publish information on. Complete Guide to Gap Trading (2023): Everything You Need to Know NewsletterĪll reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team.
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