Definition
Gap Up / Gap Down
A gap is when a stock or index opens significantly above (gap up) or below (gap down) the previous close, leaving an empty space on the chart.
Gaps form when overnight news, global cues, or results cause the opening price to jump away from the prior close. A gap up opens higher and reflects bullish pressure; a gap down opens lower on bearish news. Gaps are classified as breakaway, runaway (continuation), or exhaustion, depending on where they occur.
Indian traders watch the SGX Nifty/GIFT Nifty and global markets to anticipate the opening gap on Nifty and stocks. A common play is the gap fill, where price retraces to close the empty space, while a strong gap that holds can signal a powerful trend day — important for F&O traders managing overnight risk.
Related terms
- Candlestick PatternCandlestick patterns are formations of one or more candles that suggest likely shifts in market sentiment.
- BreakoutA breakout is when price moves decisively beyond a defined support, resistance, or pattern boundary, often starting a new move.
- Support and ResistanceSupport is a price level where buying tends to halt a fall; resistance is a level where selling tends to cap a rise.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.