Price gaps are moments when markets move faster than usual, leaving visible spaces on price charts that raise questions for new traders. These movements can look sudden and confusing, but they follow clear market logic. In this guide, DS Financial, one of the most established names in online brokerage, explains key terms related to gap investments in simple language, using real market behavior to show how these concepts work in practice. 

Price gap 

A price gap appears when an asset opens at a level that is higher or lower than where it last traded, with no transactions in between. This happens after a pause in trading, such as overnight in stock markets or over the weekend. During that break, new information reaches investors, and many decide to act at the same time once trading resumes. 

A common example comes from earnings season. When a listed company releases results after the market closes, investors have time to analyze the numbers. If the news exceeds expectations, buyers can rush in the next morning, pushing the opening price much higher than the previous close. The chart then shows a gap because trading skipped the prices in between. 

Price gaps can also appear in forex when major economic data is released during low-activity hours, or in commodities after unexpected geopolitical developments. Although crypto trades around the clock, gaps can still appear on some platforms during periods of thin liquidity. 

Following DS Financial’s observation, recognizing that a gap is a reaction to new information helps traders stay calm and avoid chasing prices without understanding the reason behind the move. 

Gap up and gap down 

A gap up occurs when the price opens higher than the previous closing level. This points to positive sentiment, such as strong earnings, favorable policy news, or renewed demand. In contrast, a gap down happens when the price opens lower after negative developments like weak results, legal issues, or broader market fear. 

These movements are easy to see in stock markets. For example, if a company announces a major contract win, its shares can gap up the next day as buyers accept higher prices. If unexpected losses are reported, a gap down follows as sellers move quickly to exit positions. 

Gaps attract attention because they show strong emotion. However, not every gap leads to continued movement. Some gaps continue in the same direction, while others reverse shortly after the open. This uncertainty explains why gap behavior needs context. 

From the perspective discussed by DS Financial, the direction of the gap alone isn’t enough. Traders benefit more when they also look at volume, trend direction, and the broader market mood before deciding how to react. 

Gap trading and gap fill 

Gap trading refers to strategies that focus on these sudden price jumps or drops. Some traders look for continuation, expecting the price to move further in the same direction as the gap. Others focus on the opposite idea, known as a gap fill. 

A gap fill happens when the price later returns to the level where the gap began, closing the empty space on the chart. This occurs when the initial reaction fades, and traders reassess the situation with more information. For instance, excitement after good news can cool down once investors realize the long-term impact is limited, leading the price back toward earlier levels. 

Gap fills are common in quiet markets or when news impact is less significant than first believed. However, not all gaps are filled. Strong trends or structural changes can keep prices away from previous levels for a long time. 

A practical example can be seen during broader market rallies. Stocks can gap up repeatedly as confidence builds, and many of these gaps remain open for months.  

Common gap types

Traders classify gaps into several types based on where they appear and how the price behaves afterward. These categories help traders describe market conditions. 

A breakaway gap appears when the price moves out of a long trading range or pattern. This type marks the beginning of a new trend. For example, when a stock breaks above long-standing resistance with strong participation, the gap suggests fresh commitment from buyers. 

A runaway gap, sometimes called a continuation gap, occurs in the middle of a strong trend. It signals that momentum is healthy and that traders continue to support the current direction. These gaps can stay open for extended periods. 

An exhaustion gap forms near the end of a trend. Price moves sharply as late participants rush in, but momentum weakens soon after. When this happens, the price can reverse and fill the gap relatively quickly. 

Real market cycles provide clear illustrations of these patterns. During strong bull phases, runaway gaps are more common, while exhaustion gaps tend to appear near turning points. Analysts at DS Financial note that identifying the gap type allows traders to manage expectations. 

Gap-related terms are useful, but they work best as part of a broader approach. Gaps show speed and sentiment, yet they don’t explain trend strength or risk on their own. Volume, market structure, and timing add important context.