What are Gaps in the Stock Market and How to Trade Them?
What are Gaps in the Stock Market? A gap occurs when the price of a stock opens higher or lower than the previous day’s closing price, creating a visible “gap” on the chart. Gaps are often driven by news or events that happen after the market closes.
Types of Gaps:
Common Gaps: Usually occur in normal market conditions and tend to be filled quickly.
Breakaway Gaps: Signal the start of a new trend and are less likely to be filled.
Exhaustion Gaps: Occur near the end of a trend and may signal a reversal.
How to Trade Gaps
Traders often look to “fill” the gap, expecting prices to move back to the previous level. Breakaway gaps can be used as strong entry points for new trends.
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