Gap up and gap down

A gap up occurs when a stock opens at a price noticeably higher than its previous closing price, and a gap down occurs when it opens noticeably lower, in both cases leaving a visible empty space, a gap, on the price chart between the prior session's range and the new session's opening range. Gaps happen because no trades occurred at the prices in between while the market was closed, typically overnight.

Gaps are usually driven by news or information that emerges after the previous session ended, such as an earnings report, a regulatory decision, an analyst upgrade or downgrade, or major company news, that shifts investors' view of fair value before the next session opens. Because the move happens instantly at the open rather than gradually through the session, gaps often represent a sharper repricing than a typical intraday move of the same size.

Traders pay close attention to whether a gap eventually gets filled, meaning price later trades back through the gapped range to touch the prior close, since gaps left unfilled by continued strong buying or selling are seen as a sign of real conviction behind the move, while quickly filled gaps are seen as more likely to have been an overreaction. Gaps that occur within an established trend, sometimes called continuation gaps, are generally read differently than gaps that occur after an extended move and mark a potential exhaustion of that trend.