Why gaps form
A gap appears when one bar's price range does not overlap the next one, leaving empty space on the chart. On a daily chart, if today's low is above yesterday's high it is a gap up; if today's high is below yesterday's low it is a gap down. More loosely, people also call it a gap when today's open is far from yesterday's close. US stocks trade in a regular session of only a few hours, while earnings, economic data and overseas news keep arriving the rest of the day. All that information and the orders it triggers land on the next regular-session open at once, and that is what creates the gap.
Why gaps can be large in US stocks
Korean stocks have a daily upper and lower price limit, which naturally caps how big a gap can be. US stocks have no such daily price limit, so after big news such as an after-hours earnings release, the next open can start far away from the previous close. US companies also tend to report earnings before the open or after the close, so large single-stock gaps are common during earnings season. For investors in Korea the outcome is usually settled overnight or early in the morning, so by the time you open the chart, the gap is often already there.
Chart settings change what you see
US stocks trade in pre-market and after-hours sessions around the regular session. If your chart shows only regular hours, you will see a gap between yesterday's regular close and today's regular open. Include extended hours and those extended bars fill the space, so the gap shrinks or disappears. That is usually why the same stock shows a big gap on one screen and none on another. Data providers can also differ on whether the daily open is the first regular-session trade or the first extended-hours trade. Before talking about a gap, check which hours your chart actually includes.
- Whether the chart shows regular hours only or includes extended hours
- Which trade the daily open is based on
- Whether intraday charts mark the extended-hours sections
- Extended-hours volume is thin, so prices jump around easily
Names for different gaps
Charting books sort gaps by where they appear and what follows. A common gap forms inside a sideways range and soon returns to it. A breakaway gap forms as price leaves a long-held range. A runaway gap appears in the middle of a trend already underway. An exhaustion gap shows up near the end of a tired trend. Most of these labels, however, can only be applied after the fact. The key point is that on the day a gap forms, you cannot know whether it is a breakaway gap or an exhaustion gap.
What filling a gap means, and its limits
A gap is filled when price later moves back through the empty zone. For a gap up, the gap is filled when price comes back down to around the previous close or high. You often hear that gaps always get filled, but there is no deadline, and some gaps stay open for a very long time. Filled gaps are also easier to remember, which can make them feel more common than they are. Treat a gap fill as one possibility, not as an assumption to build a plan on.
What to check on a gap day
Looking at the surrounding information instead of the gap alone makes misreading less likely. Check whether volume rose well above normal, whether the cause is company-specific news or a market-wide move, and whether price keeps moving in the gap's direction after the open or turns back. If the index gapped the same way, market-wide factors may have mattered more than anything about the single stock.
- How much volume rose compared with normal
- How the index and same-sector stocks moved that day
- The filing or announcement behind the gap
- Whether the move continues after the open or reverses
Checking with this site's live tools
Open a stock's daily chart in the stock buy and sell signals tool to see how the indicators changed on the gap day. The large-cap scanner for Korean and US stocks lets you scan many names at once to find the ones that moved sharply, and the stock comparison tool lets you place that stock next to an index to judge whether the gap was about the company or the whole market. The values these tools show are results of published rules and do not predict the future.
Summary and caution
A gap is the trace of information that arrived while the market was closed, absorbed into price all at once. Because US stocks have no daily price limit and do trade in extended hours, the size and shape of a gap depend on your chart settings. A gap's type and whether it gets filled are mostly known only later. This article explains how to read charts and does not recommend trading any stock. It is not investment advice; decisions and their consequences are your own.
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