What Are Price Gaps on Candlestick Charts?
A gap appears when a bar's range does not overlap the prior bar's range—open above prior high or below prior low. Gaps reflect overnight news, order imbalance, or structural supply-demand shift. On stocks, common after earnings; on indices, after macro shocks. Gap up shows bullish imbalance at open; gap down bearish. Not all gaps matter—filter by size relative to ATR and liquidity. Partial gaps overlap slightly; true gaps have clean separation.
Twenty-four-hour markets show fewer gaps on continuous charts; session-based equity charts gap at each open.
How Do You Classify Breakaway, Runaway, and Exhaustion Gaps?
Breakaway gap occurs leaving base or pattern—often with volume, starts new trend leg. Runaway or measuring gaps appear mid-trend—continuation signal, sometimes project equal distance again. Exhaustion gap appears late in extended move—climactic volume then reversal and gap fill. Common gap in range often fills quickly without trend change. Classification is retrospective—first bar is breakaway candidate until trend proves otherwise. Volume and follow-through bars help label after the fact.
Island reversals combine two gaps—exhaustion into island plus breakaway away from island.
How Should Traders Use Gaps in a Process?
Do not chase gap extensions without plan—wait for opening range or first pullback. Breakaway gap hold above gap low on pullback supports long in new uptrend. Gap fill trade: fade back toward prior close when exhaustion suspected with tight stop beyond gap extreme. Unfilled gaps in trend act as support or resistance—buyers defend gap low in bull gap. Mark gap edges on chart for weeks—they attract price.
Pre-define whether you trade gap-and-go or gap-fill strategies—mixing them on same watchlist causes confusion.
Where Do Stops and Targets Go for Gap Setups?
Gap-and-go long: stop below gap low or opening range low. Target measured move equal to gap size or prior range height. Gap fill fade: stop beyond gap high if shorting fill from above. Partial at prior close into gap. Overnight gap risk can skip stop—use smaller size through events. ATR helps judge if gap is unusually large for the symbol.
Gap through your stop on open is common—account for worst-case gap when sizing overnight holds.
When Do Gap Signals Fail?
Breakaway gap fills immediately—false start. Exhaustion mislabeled while trend continues with runaway gaps. Low-float gaps manipulated then reverse. Trading common gaps in ranges as breakouts. Ignoring earnings calendar—gap is event not pattern. Gap fill does not always mean reversal—sometimes pause then continue. Gap literacy means context, not trading every opening discontinuity.
Track gap fill rate on your universe—some symbols fill eighty percent of gaps, others rarely fill.