What is Gap?
Gap (bo'shliq)
In short
When price opens well above or below the prior close, leaving an empty space on the chart. Often after news or earnings.
Also known as: gap up, gap down
A gap is when price opens significantly above or below the previous period's close, leaving an empty space between two candles on the chart. In US stocks gaps usually happen overnight: an earnings report, major news or macro data comes out while the market is closed, and the next day price opens at a new level.
Calculation
Gap % = (Open − Previous close) ÷ Previous close × 100.
Positive means a gap up, negative a gap down.
Types
- Common gap — small, often "filled" quickly (price returns to the old close).
- Breakaway gap — price gaps out of an important level, usually on heavy volume.
- Runaway (continuation) gap — in the middle of a strong trend, signalling the move is continuing.
- Exhaustion gap — at the end of a long move, often followed by a reversal soon after.
Why it matters for risk
A gap is the situation in which a stop-loss can't fully protect you. If price jumps over your stop, the stop order turns into a market order and fills at the first available price — much worse than planned. It is the harshest form of slippage. That is why holding a position through earnings should be a deliberate decision.
A bad report came out after the close: the stock that closed at $46.20 opened at $41.50. The $45 stop filled at the first available price — $41.50. The planned loss was $3 per share; the real one was $6.50.
The report came out after the close — the next day opened 11% higher with no trades in between. A stop cannot help here: price jumps over it.
Example
Illustrative case: a stock closes at $150. That evening the company reports and results disappoint. The next morning the stock opens at $138.
- Gap: ($138 − $150) ÷ $150 × 100 = −8% (a gap down).
A trader holds 100 shares bought at $150, with a stop at $145:
- Planned loss: ($150 − $145) × 100 = $500.
- Actual loss: the stop filled near the $138 open → ($150 − $138) × 100 = $1,200.
The loss was 2.4 times the plan — not because the stop was badly placed, but because price jumped right over it.
Mistakes and tips
Know the earnings date in advance — trimming the position before the report reduces gap risk.
Not every gap gets filled: high-volume breakaway gaps often stay open for years.
Big pre-market gaps swing sharply at the start of the regular session — don't rush in during the first minutes.
Frequently asked questions
- Do gaps always get filled?
- No, that is a popular myth. Many small gaps do fill, but high-volume, news-driven gaps can stay open for a long time.
- Does a stop-loss work during a gap?
- It triggers, but not at the stop price: if price jumps past the stop, the order fills at the first available price and the loss is bigger than planned.
Learn it in the Academy
This term is covered with hands-on examples and a quiz in these lessons of the interactive course.
- How the US market worksExchanges and brokers, sessions in Tashkent time, spread and liquidity, five order types with examples, T+1, costs and fractional shares.Open lesson · 12 min
- Earnings seasonCompanies report every quarter: the calendar, consensus, beats and misses, guidance, the conference call, the expected move, gaps and drift, and managing a position into a report.Open lesson · 13 min
- Flags and pennantsThe short pause after a strong move: pole, flag, pennant, measured move, breakout and pullback entries, stops, and telling a flag from a reversal.Open lesson · 11 min
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