Market Trends & Sentiment

Gap (Gap Up / Gap Down)

The opening price starting sharply away from the prior day's close — the result of overnight results and news being priced in at once.

In plain terms

A gap is the price starting at a spot "sharply" away from where it ended yesterday when the market opens. An empty space (gap) forms on the chart, hence the name. Jumping up is a gap up; starting down is a gap down.

Usually, when results or big news come out overnight while the market is closed, the next morning it all gets priced in at once and a gap forms. If results far beat expectations, it starts with a gap up.

What it tells you

A gap is "an event outside trading hours being priced in at an instant." Big information like results, M&A, or bad news is often the cause of a gap.

So when a gap appears, you have to first see "why it gapped" (what news or results). Following a gap without knowing the cause is risky.

Formula

gap = the opening price starting far from the prior close (an empty space on the chart = a "gap")
gap up = jumps up / gap down = jumps down

What high or low means

A gap up usually reflects good news (strong results, etc.), a gap down bad news. But it can also get pushed back after a gap up on "the catalyst being spent," or rebound after a gap down on being oversold.

Whether the gap gets filled during the day (the price returning to fill it) is often watched too, but that is known only in hindsight.

Caution

"It gapped up, so buy because it's rising" is risky. If the good news is already fully priced into the gap, it can get pushed back afterward on profit-taking. (This is a concept explainer, not a trading suggestion.)

More than the size of the gap, "whether the cause is temporary or structural" matters. Chasing only the gap without knowing the cause easily gets you trapped.

Metrics to read alongside

Earnings Surprise

When results far miss or beat expectations (an earnings surprise), it often appears as a big gap the next day. You can find the gap's cause in the results.

Bull Trap / Bear Trap

When a gap up gets pushed back or a gap down rebounds, those who followed get trapped. When reading a gap as a signal, watch for the trap possibility too.

See it in real stocks

Search US stocks on Stocklore to see Gap and other financial metrics alongside the sector average.

AAPL Apple Inc.MSFT Microsoft Corporation NVDA NVIDIA Corporation AMZN Amazon.com, Inc.Search stocks →

Exactly how Stocklore computes this metric (formula, thresholds, SEC source) is on the methodology page.

This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.