Direct Answer
A gap up occurs when price opens above the prior bar's high, and a gap down occurs when price opens below the prior bar's low. Both leave an untraded price void: a range of prices between the two bars where no trade actually printed. A gap can stay open indefinitely or fill later when price trades back through that void, and no rule guarantees either outcome, so gaps are read alongside level, volume, and cause rather than treated as a signal on their own.
Key Takeaways
- A gap up occurs when price opens above the prior bar's high; a gap down occurs when price opens below the prior bar's low, both leave an untraded price void.
- The void is the range of prices between the prior bar's extreme and the new bar's open, no trade printed at any price inside that range.
- Gaps commonly form around a market close/reopen (overnight, weekend, or a trading halt) or immediately after news, earnings, or a large order imbalance shifts the price at which buyers and sellers agree to transact.
- A gap can stay open indefinitely or "fill" later when price trades back through the void to the prior bar's high (gap up) or low (gap down), there is no rule guaranteeing either outcome.
- Traders read gaps in context, level, volume, and what caused the gap, rather than treating the presence of a gap alone as a signal to buy or sell.
Gap Up and Gap Down
A gap up occurs when price opens above the prior bar's high; a gap down occurs when price opens below the prior bar's low, both leave an untraded price void on the chart, a range of prices between the two bars where no trade actually printed.
What Is a Gap Up or Gap Down?
Every bar on a chart has an open, high, low, and close. Under normal trading, one bar's open sits somewhere inside or close to the range of the bar before it, because price moved there by trading through the levels in between. A gap is what happens when that continuity breaks: the new bar's open lands outside the prior bar's entire range, meaning trading resumed at a materially different price than where it left off.
A gap up is the bullish version, the new bar opens above the prior bar's high. A gap down is the mirror, bearish version, the new bar opens below the prior bar's low. In both cases, the space between the prior bar's extreme and the new open is an untraded price void: no buyer and seller agreed to a trade at any price inside that range, so it shows up on the chart as a visible gap between the two bars' price ranges.
How a Price Gap Forms
Gaps form whenever the price at which the market reopens for trading differs from the price at which it last traded, without any transactions occurring at the levels in between. The most common trigger is a market closure, overnight, over a weekend, or during a trading halt, combined with new information (earnings, economic data, news) that arrives while trading is paused. When the market reopens, participants price in that information immediately rather than trading through every intermediate level, and the bar opens beyond the prior bar's high or low.
Gaps can also form intraday on lower-timeframe charts around scheduled data releases or when a sudden order imbalance overwhelms the resting orders at nearby prices, though they are most visible and most discussed on daily charts around session opens.
Gap Up and Gap Down Example
The chart below shows a deterministic, illustrative example: a bar opens with a visible void above the prior bar's high (a gap up), followed by a mirrored sequence where a later bar opens with a void below its prior bar's low (a gap down). Toggle between the confirmation view, where the gap-up void stays unfilled as price extends higher, and the alternate view, showing the mirrored gap-down sequence.
How to Trade Around a Gap
Identify what caused it
A gap driven by a clear catalyst, earnings, guidance, a macro data release, carries different implications than a gap with no obvious cause, which is more likely to be driven by thin liquidity around the open. Knowing the cause helps frame whether the new price level reflects a genuine repricing or a temporary imbalance.
Watch whether the void gets filled
Some traders track whether price later trades back through the void to the prior bar's high or low, a "fill." A gap that holds without filling for several bars is generally read as the market accepting the new price level; a gap that fills quickly suggests the initial move may not have real conviction behind it. Neither outcome is guaranteed, so this is a read on developing price action, not a rule.
Treat the void as a reference level, not a trigger
The edges of the void, the prior bar's high for a gap up, the prior bar's low for a gap down, function as reference levels other price action can be measured against, similar to support and resistance. Combining that reference with volume, trend context, and a defined invalidation point is more reliable than reacting to the gap in isolation.
Common Gap-Trading Mistakes
- Assuming every gap must fill, some gaps, especially those driven by a genuine shift in fundamentals, never trade back through the void.
- Ignoring the cause, a gap with a clear news catalyst behaves differently than an illiquid, causeless gap; treating them the same leads to mismatched expectations.
- Chasing the open, entering immediately at the gapped-open price, before the market has established direction for the session, risks buying or selling at the least favorable moment of the move.
- Confusing a gap with a liquidity sweep, see the comparison below; a gap is an open-price discontinuity, not a wick through a level.
Gaps vs. Similar Price-Action Concepts
| Term | What it emphasizes | Key difference from a gap |
|---|---|---|
| Gap up / gap down | Open price landing outside the entire prior bar's range | Baseline, a discontinuity in where trading resumes, not a wick or intrabar move |
| Breakaway gap | A gap that starts a new trend, often out of a consolidation range | A specific, contextual label for a gap's location and follow-through, not a different price mechanic |
| Exhaustion gap | A gap late in an existing trend that quickly reverses | Same open-price mechanic; the label describes where in the trend the gap occurs, not how it forms |
| Liquidity sweep | A wick that pushes through a level intrabar before reversing | Happens within a bar's trading range at a resting-order level; a gap happens between two bars' ranges at the open |
Limitations of Gap Analysis
A gap is a fact about where a bar opened relative to the prior bar's range, it does not by itself explain why the gap happened or predict whether it will fill. Reading intent (news-driven versus a liquidity-driven illiquid open) requires context beyond the chart itself, such as an earnings calendar or news feed. Like any single pattern, a gap is best combined with the surrounding trend, volume, and a defined plan for what would invalidate the read, rather than traded in isolation.
A Region of the Chart With No Price History
The defining property of a gap is that no trade printed anywhere inside it. That has a consequence worth thinking through: the prices spanned by the void have no history at all. Nobody bought or sold there, no supply or demand was established, and any level someone draws inside a gap is an invention rather than an observation. Levels either side of the void are real; the space between them is empty in a literal sense.
The same fact explains why orders resting inside a gap do not execute at their price. A stop placed in that range becomes active when price reopens beyond it, and the fill happens wherever the market actually is, which can be some distance away.
Where the gap came from changes what to expect from it. An overnight or weekend break, a trading halt, a reaction to news or an order imbalance at the open all produce the same visual void and quite different follow-through, and the chart shows none of that. Establishing the cause is a separate step requiring a calendar or a news source.
Two habits follow. Do not treat filling as inevitable, since gaps driven by a genuine change in circumstances can stay open indefinitely. And be wary of acting at the opening print, before the session has established any direction to work with.
Gap Up and Gap Down FAQs
What is a gap up?
A gap up occurs when a bar or session opens above the prior bar's high, leaving a price range between the prior high and the new open that never traded, an untraded price void.
What is a gap down?
A gap down occurs when a bar or session opens below the prior bar's low, leaving an untraded price void between the new open and the prior bar's low.
Why do price gaps happen?
Gaps happen when new information, order imbalances, or a market closure (such as overnight or over a weekend) shifts where buyers and sellers are willing to transact before the next bar opens, so trading resumes at a different price than where it left off instead of moving through every price in between.
Do all gaps get filled?
Not necessarily. A gap is considered "filled" when price later trades back through the void and reaches the prior bar's high (for a gap up) or low (for a gap down). Some gaps fill within the same session, others take much longer, and some are never filled, there is no rule guaranteeing a fill.
How is a gap different from a normal price move?
A normal price move trades through every price level between two points, on the tape. A gap skips a range of prices entirely, the market opens beyond the prior bar's high or low without any trades occurring at the prices in between, leaving that range as an untraded void on the chart.
What counts as a gap in a market that never closes?
The definition needs a session boundary, and a continuously traded market has none unless one is imposed. Charts of such instruments show gaps only where liquidity vanished entirely, or at the artificial day boundary the data vendor chose. The concept does not translate cleanly, which is why gap-based analysis is far less prominent in markets that trade around the clock.
Is a gap on a weekly chart the same as one on a daily chart?
Aggregation removes most of them. A weekly bar spans five sessions and its range covers everything inside the week, so a Tuesday gap disappears entirely unless it happened to fall outside the whole week range. Gaps on weekly charts therefore occur only where an entire week opened beyond the prior week range, which is rare and represents a much larger event.
Does the same event appear as a gap in the futures market?
Usually not, because index futures trade through most of the overnight period. The move that appears as a gap on the cash index chart is visible as continuous trading on the futures chart. That makes the futures series useful for seeing how the repricing developed, which is information the gap on the cash chart records only as an empty space.
How large does a discontinuity have to be to count as a gap?
Technically any opening price beyond the prior bar range creates one, including a difference of a single tick. In practice such gaps are constant in liquid instruments and are ignored. Any rule referencing gaps therefore needs a size threshold, usually expressed as a percentage or as a fraction of average true range, and the threshold determines how many events exist.