Price gap

A gap is a zone price jumped over between two candles without trading. One day's high is 101, the next day opens at 104 and never trades below 103: nothing changed hands between 101 and 103. A jump up is a gap up, a jump down a gap down.

Most gaps come from news while the market is closed. A company reports earnings after the bell and the stock opens at a new price. On exchanges with an opening auction, like Borsa Istanbul, the opening price can land well away from the prior close. In forex, weekend news does the same at the Monday open.

In 24/7 markets like crypto, true gaps are rare: price doesn't jump, it just moves very fast. But a spike of two big candles after a headline is, for decision-making, almost the same thing. Price is suddenly far away and you're on the outside.

A common gap is a small one inside a range and often fills soon. A breakaway gap clears a range or resistance with a jump and can start a new move. A runaway gap appears mid-trend and shows the move accelerating. An exhaustion gap comes at the end of a long move; if it fills quickly, the move is probably done.

The gap's location tells you which one you're looking at. A jump out of the top of a range isn't the same as a stock that has rallied for five days and then gaps up again. A candle's meaning is where it stands, and that goes for gaps too.

Watch the first few candles after it. In a breakaway gap price holds above the gap and, even on a pullback, barely enters it. If price fills the gap fast and closes below it, the read changes. The stop logic follows from that: in a breakaway gap, the far side of the gap is where the idea breaks.

Some traders also watch imbalances that aren't true gaps. In a three-candle sequence, if the first candle's high and the third candle's low leave space between them, that's called a fair value gap. Price often returns to it, but that isn't guaranteed either.

The data hits, price jumps 2,000 dollars in two candles and you buy up there. That's entering at the most expensive point. Where does the stop go? The only logical spot is where the move started, 2,000 dollars below. 1R becomes huge and the target is unclear.

The healthier path is waiting for the first pullback. If the move is real, price pauses, eases back and holds somewhere. That hold gives you a stop location: the pullback low. If you miss it, you miss it; another setup comes along.

The opposite mistake is common too: fading the gap because it must fill. Shorting a strong breakaway gap means standing against the new information behind the headline. With no structure, wait either way.

Half true at best. Many do eventually, not all, and the ones that do give no timing. Some breakaway gaps stay open for years. Don't make that saying your reason to trade.

A gap can also jump your stop. If your stop sits at 100 while the market is closed and price opens at 94 the next day, you're out at 94 or close to it, not at 100. That's slippage: with an entry at 106, a loss planned as 6 points becomes 12, so 1R turns into 2R. It's the risk of holding through weekends and earnings.

In thin markets and small stocks, gaps form more easily and say less. Read a gap together with the volume and the news behind it; on its own it doesn't give a direction.