Direct Answer
Price gap percentage measures the jump between one session's close and the next session's open as a percentage of the prior close. A positive value is a gap up and a negative value a gap down. The size of the gap shows how much new information or order imbalance arrived outside regular trading, such as earnings or news.
Price Gap Percentage: Formula, Meaning, Signals, Examples and How to Use It
How Is Price Gap Percentage Calculated?
Price gap percentage measures the jump between one session's close and the next session's open as a percentage of the prior close. A positive value is a gap up and a negative value a gap down.
Formula: Gap % = (open_t - close_t-1) / close_t-1
Inputs:
- Prior session close
- Current session open
Worked example. An open of 52 after a prior close of 50 is a gap of 4.0%. The inputs are illustrative numbers, not market data.
Reading it. The size of the gap shows how much new information or order imbalance arrived outside regular trading, such as earnings or news. Whether a gap is later filled (price returning to the prior close) is an observation, not a rule.
Limits. Gaps in thinly traded pre-market conditions can be unrepresentative, and the number must be adjusted for splits and dividends. It does not explain why the gap occurred.
What is Price Gap Percentage?
Price gap percentage measures the jump between one session's close and the next session's open as a percentage of the prior close. A positive value is a gap up and a negative value a gap down.
How to use Price Gap Percentage
The size of the gap shows how much new information or order imbalance arrived outside regular trading, such as earnings or news. Whether a gap is later filled (price returning to the prior close) is an observation, not a rule. A reading alone is never a buy or sell signal; it needs context from price structure, volume, volatility and the broader market regime.
Strengths
- Scaling the gap by the prior close makes gaps of different-priced securities directly comparable on one percentage scale.
- The sign gives direction at once, positive for gaps up and negative for gaps down, using only two prices.
- Reproducible when the formula and data convention are fixed.
Weaknesses and limitations
- Only the close-to-open step is measured, so a gap filled within minutes and one that holds all day give the same reading.
- On an ex-dividend date the open is mechanically lower by the dividend, which can register as a gap down that nobody traded.
- Correlated indicators can create false confidence by repeating the same underlying information.
Editorial and risk note
This page is educational content, not individualized investment advice. It should not imply guaranteed prediction, accuracy or outperformance.
Frequently Asked Questions
Is Price Gap Percentage a buy or sell signal?
No. The size of the gap shows how much new information or order imbalance arrived outside regular trading, such as earnings or news. Gaps in thinly traded pre-market conditions can be unrepresentative, and the number must be adjusted for splits and dividends. A trade built on it still needs a trigger, an invalidation rule, a position size and realistic execution assumptions.
What is the best setting for Price Gap Percentage?
Price Gap Percentage is computed from prior session close; current session open, so the choices that matter are the data convention and the window it is read over. Test those across instruments, regimes and out-of-sample periods instead of fitting one historical winner.
Can Price Gap Percentage be used by itself?
Gaps in thinly traded pre-market conditions can be unrepresentative, and the number must be adjusted for splits and dividends. It does not explain why the gap occurred. For that reason it is read next to measures of direction, participation, valuation, liquidity and risk, not alone.
Does Price Gap Percentage work on every timeframe?
The calculation (Gap % = (open_t - close_t-1) / close_t-1) can be run on any bar size, but behavior is not portable: a reading on a five-minute chart describes a very different market window from the same reading on a daily chart. Validate the exact timeframe before relying on it.
Why does Price Gap Percentage give false signals?
Only the close-to-open step is measured, so a gap filled within minutes and one that holds all day give the same reading. On an ex-dividend date the open is mechanically lower by the dividend, which can register as a gap down that nobody traded. Lag, noise and regime changes add to this, because market participants react to new information after the reading is calculated.
How should Price Gap Percentage be backtested?
Rebuild Price Gap Percentage from prior session close using point-in-time data, write the rules before testing, include delisted securities where relevant, model realistic fills and costs, reserve a validation sample and compare with a simpler baseline.