How to play the market gap ups and gap downs Gaps are the space between the open and the closing prices of two consecutive days and such gaps normally get filled.
One of the common terms you must have in markets quite often is a gap up or a gap down. Gaps are the space between the open and the closing prices of two consecutive days and such gaps normally get filled. Hence it is an important indicator to the trader in identifying the trading opportunities on the stock. To be precise, a gap is essentially a change in prices levels between the close and the open of two consecutive days. Here we are referring to two consecutive trading days. Gap analysis is retrospective in nature as it requires confirmation that is only available after the price movement actually manifests itself. For example, there are different types of gaps like common gap, breakaway gap, continuation gap and exhaustion gap, but all these gaps are evident only after the price impact is visible on these stocks. Gap ups and gap downs are with reference to two consecutive day’s price levels. It focuses more on prices and does not look at volumes. Let us look at two such very specific types of gaps. For example, a full gap up occurs when the next day opening price is higher than the high price of the previous day. Check the chart below, where the green arrow depicts the gap up point.