Gap Up

An opening price significantly higher than the previous session's closing price, leaving an unfilled 'gap' on the price chart.

Gap ups occur when a security opens substantially higher than its previous close, leaving a space on the chart where no trading occurred. They are typically caused by after-hours news: earnings beats, analyst upgrades, merger announcements, FDA approvals, or positive macroeconomic data released before the market opens. The gap reflects overnight price discovery in the futures or pre-market trading session.

Gaps are studied by technical traders for clues about momentum and future price behavior. "Breakaway gaps" occur at the beginning of a new trend — price gaps out of a consolidation range, and the gap represents strong conviction that is rarely filled quickly. "Runaway" or "continuation" gaps occur mid-trend and signal accelerating momentum. "Exhaustion gaps" occur near the end of a trend when the last burst of enthusiasm drives a final gap before the trend reverses.

The concept of "gap fill" is based on the observation that gaps on charts are often eventually "filled" — price eventually trades back to cover the gap. This tendency is stronger in some contexts (gaps caused by temporary news events) than others (fundamental breakaway gaps). Many traders use unfilled gaps as support levels on pullbacks, anticipating that the gap area will provide buying interest.

This definition is for informational and educational purposes only. Nothing on Finance Compass constitutes financial, investment, or trading advice. Always conduct your own research and consult a qualified professional before making financial decisions.