Gap in the Stock Market: What It Is and Types of Gaps
Introduction
A gap is a sharp price difference between the closing of the previous bar and the opening of the next one, which occurs due to sudden changes in market sentiment towards news or liquidity. For Russian-speaking traders, gaps often serve as starting points for opening and closing positions, and their analysis aids in understanding trend strength and the timing of entry.
Gaps demonstrate how quickly and dramatically the balance of power can shift between buyers and sellers. Understanding this phenomenon is crucial not only for day traders but also for long-term investors analyzing entry points in their portfolios and assessing the risks of significant market movements.
An introduction to the concept of gaps allows traders to better prepare for unpredictable movements and develop action plans considering potential price gaps.
1. Concept and Nature of Gaps
1.1 What is a Gap and Why Does It Occur?
A gap is a blank space on a chart that forms when there are no trades within a specific range. The main reasons include the publication of off-exchange news, withdrawal of institutional investors, a strong push from market makers, and a technical adjustment in liquidity.
Gaps can also be caused by the emergence of unexpected economic indicators or geopolitical events that necessitate an immediate reassessment of asset values. For example, an unexpected change in central bank rates leads to an instantaneous price adjustment.
1.2 Gap vs. Normal Movement
Normal movements create a continuous line: every trade is reflected on the chart. A gap forms during aggressive market orders or iceberg orders, skipping intermediate prices and signaling a sharp imbalance of supply and demand.
Price breaks are often accompanied by decreased liquidity between the closing and opening bars, and traders view this as an opportunity for quick entries or exits— provided they are prepared to manage risk in heightened volatility conditions.
Visually, a gap is highlighted by a blank white space— an unfilled volume that the market may address in the near future.
2. Types of Gaps and Their Characteristics
2.1 Breakaway Gap
This occurs when a key support/resistance level is breached. Volume rises, the price retraces, forming an entry signal. A stop-loss is placed beyond the other edge of the retrace.
The breakaway gap often appears on higher timeframes, and its confirmation through retracement on lower timeframes gives confidence in the direction of movement. This type of gap signals the beginning of a new trend phase.
2.2 Runaway (Measure) Gap
Within a trend— the price overcomes barriers, measuring the target from the previous gap. Volume is moderate, and movements continue without pullbacks.
The runaway gap serves to define trend strength: traders measure the distance from the trend's inception to the first gap and project it forward as a target level for profit taking.
2.3 Exhaustion Gap
This signals the end of a trend: volume is maximal, and a counter-trend pattern follows the gap. Investors take profits, and traders counter-trend until the gap is filled.
The exhaustion gap is often accompanied by indicator divergences (RSI, MACD), which serve as additional confirmation of an impending reversal.
2.4 Common Gap
Technical noise within a range: volume is low, and it fills quickly. It is used for intraday scalping and capturing small profits.
Common gaps are most often filled within a trading session, and trading them requires quick reaction times and strict stop-loss management.
3. Trading Strategies
3.1 Entry on Breakaway Gap
Identify a breakout, retrace on M15–H1, confirmation candle, stop placed at the edge of the retrace, take profit at the next level.
To enhance entry accuracy, traders sometimes wait for the closure of the retrace bar and utilize limit orders within its range.
3.2 Measure Gap Strategy
Measure the distance to the previous gap, fixing the target at an equivalent length further. Partial profit taking, moving the stop to breakeven.
This method helps avoid excessive exposure during a sharp trend impulse and preserves part of the profit in case of an unexpected reversal.
3.3 Counter-Trend on Exhaustion Gap
Wait for an engulfing pattern or pin-bar after the gap, stop placed at the extreme, first target is to fill the gap.
Counter-trend trading is often used on daily charts, where the exhaustion gap is clearly evident at the end of a long trend.
3.4 Trading Common Gap
Scalping within the intraday range. Quick profit taking at the edges of the gap.
The primary goal is to avoid holding positions for long durations, as common gaps fill quickly and delays can lead to losses.
4. Filling and Retesting Gaps
4.1 Filling the Gap
About 70% of gaps fill within a week. Common gaps fill within a day, and exhaustion gaps fill more slowly. Liquidity accelerates this process.
Traders can trade based on expectations of filling the gap by opening positions in the direction of the retrace and taking profits once the gap closes.
4.2 Level Retest
After a breakaway gap, the price often returns to the gap edge to test the barrier's strength. A retest reduces the risk of entry on false breakouts.
Retests on lower timeframes often coincide with the formation of candlestick patterns (inside bar, pin bar), which serve as entry signals.
5. Volume and Volatility
5.1 Volume as a Filter
High volume during breakaway/exhaustion confirms institutional participation. Low volume indicates a common gap.
Traders often compare the gap volume against the average volume over the last N days to assess the gap's significance.
5.2 Volatility After the Gap
ATR and VIX indicate peak values. Volatility decreases within 1–3 days, creating entry opportunities.
The ability to assess volatility allows for the setting of appropriate stop-losses and take-profits, adapting them to current market conditions.
6. Fundamental and Technical Triggers
6.1 News and Reports
Quarterly reports, macro-indicators, and central bank decisions trigger gaps before and after the market opens. A trading calendar can help forecast periods with a high likelihood of gaps.
It is crucial to consider not only the actual data but also market expectations: sometimes gaps arise from disappointment or positive surprises compared to forecasts.
6.2 Technical Factors
Triggering stop-losses by market makers on low liquidity forms gaps without news. Analyzing DOM and cluster charts reveals areas where stop orders are clustered.
Traders use volume profile levels to identify areas where orders are concentrated and predict potential gaps.
6.3 Integrated Approach
On news days, traders place pending orders considering potential gaps, monitor volume and retests, and factor in subsequent macro news to adapt their strategy.
This allows for reduced slippage risk and avoids the triggering of stop-losses during periods of high spreads when a gap occurs.
7. Cases and Examples
7.1 Example of Breakaway Gap on SBER Stock
At the time of publishing the Q2 2025 report, the stock broke through resistance at 300 RUB, creating a gap of 310–300 RUB, with a volume increase of +120%. After a retrace on M30, we entered on a pin-bar, targeting 330 RUB.
7.2 Runaway Gap on RTS Futures
An upward trend: gap of 140,000–141,500, with the measure gap scenario providing a target of 144,000, capturing +2,500 points.
7.3 Exhaustion Gap on EUR/USD
After the ECB meeting, an upward gap formed at 1.0850–1.0900, with volume +150%, followed by a bearish engulfing pattern on H1 as the price retreated to 1.0850.
7.4 Analysis of Common Gap on Brent Oil
Within consolidation, oil opened with a downward gap after technical liquidation, creating a gap of 85–84 $, which filled within an hour, providing an opportunity for intraday traders to capitalize on the reversal.
7.5 Cases on Moscow Exchange Stocks
Following the announcement of a dividend policy, Yandex experienced a gap up from 4500 to 4600 RUB, with a volume increase of +80%. The gap was filled through a retest of the 4600 RUB level two days later, confirming the strength of the gap.
Gazprom showed a common gap down during a technical market correction within a trend, with a gap of 230–228 RUB, which was filled by intraday quotes.
Conclusion
Gaps reflect the market's instant reassessment of information and provide traders with powerful entry and exit signals. By analyzing the types of gaps, volumes, retests, and fundamental drivers, one can build a reliable strategy with optimal risk management. Combining technical and fundamental analysis enhances the accuracy of forecasts and trading effectiveness.
Regularly testing strategies on historical data, maintaining a trading journal, and engaging in continuous learning will help adapt to changing market conditions and improve results.
