A gap is a price range in which nothing traded — the session opened above the previous high or below the previous low, leaving a blank strip on the chart. In a 24-hour market gaps are rare. In Indian equities, where the market is closed for seventeen and a half hours and reacts to Asian and US cues at the open, they are routine.
Why a gap becomes a level
Does it fill?
"Gaps always fill" is one of the most repeated and least reliable claims in trading. Some fill within hours; some have stood open for a decade. What actually determines it is why the gap happened.
| Gap type | Fills? | What it tells you |
|---|---|---|
| Common | Usually, quickly | Ordinary overnight order imbalance. Carries almost no information. |
| Breakaway | Often not | Genuine repricing on real news out of a consolidation. The most significant gap. |
| Runaway | Rarely, while the trend lasts | The trend accelerating. Often near the midpoint of the whole move. |
| Exhaustion | Almost always, and fast | The last buyers arriving. Followed by a stall and reversal. |
| Island reversal | Eventually | Trapped traders on both sides of an isolated cluster. A strong reversal signal. |
Distinguishing runaway from exhaustion in real time
This is the hard problem, because the two look identical on the day and mean opposite things. There is no certain answer, but three checks help.
- Where in the move are you? A gap in week two of an advance is more likely a runaway. A gap in week nine, after the stock has already doubled, is far more likely exhaustion.
- What happens in the following sessions? A runaway gap is followed by continued progress. An exhaustion gap is followed by wide-ranging candles that go nowhere — heavy activity, no advance.
- How extreme is the volume? A genuine blow-off usually comes with the highest volume of the entire trend. Record volume plus no further progress is the clearest exhaustion tell available.
Trading around them
- Wait for a pullback to the gap edge after a breakaway gap — a defined entry with a tight stop.
- Use the gap edge as your invalidation level: closing back inside it means the break failed.
- Treat a large unfilled gap far below current price as a genuine air pocket in a sell-off.
- Buying the open of a big gap up because "it is breaking out".
- Shorting a gap up purely because "gaps always fill".
- Ignoring whether the gap came with volume — a gap on thin volume is often just a wide overnight spread.
A stock has risen 90% over four months. It gaps up 7% on the highest volume of the entire move, then spends the next six sessions with large ranges and no net progress. What is this most likely?
Aap raat ko dukaan band karke gaye, subah aaye toh bahar bheed lagi hai. Beech mein kuch hua jo aapne dekha hi nahi. Gap wahi hai — bazaar band tha aur khabar aa gayi. Isiliye stop loss gap mein kaam nahi karta: aapka ₹95 ka stop tha, khula seedha ₹80 pe.
- A gap is a price range where nothing traded — and therefore where nobody holds a position.
- "Gaps always fill" is false. Whether it fills depends entirely on why it happened.
- Breakaway gaps on heavy volume out of a base are the most significant kind.
- Check whether the whole market gapped before concluding anything about the company.
- No stop-loss survives a gap. Position size is the only protection.
Mark it done to track your progress through the curriculum.
Common questions
Short, direct answers to what people ask about this topic.
- do gaps always get filled
- No — some fill within hours and some have stood open for years, and what decides it is why the gap happened. Common gaps from ordinary overnight order imbalance usually fill quickly and carry almost no information; breakaway gaps out of a consolidation on real news often never fill; exhaustion gaps almost always fill, and fast. Shorting a gap up purely on the belief that gaps always fill is one of the more dependable ways to lose money.
- a price range on a chart in which no trading took place is called a
- A gap — the session opened above the previous high or below the previous low, leaving a blank strip where nothing changed hands. Because nobody bought or sold inside that range, nobody is trapped there and nobody is waiting to break even there, and that absence is exactly what makes gaps behave as support and resistance later. Price returning to one tends either to move through it quickly or to bounce cleanly off its edge.
- why does the Indian stock market gap up or down so often
- Because the cash market is closed for roughly seventeen hours a day and reopens after Wall Street has shut and while Asian markets are already trading, so overnight news gets priced into the opening print rather than traded through gradually. In a 24-hour market gaps are rare; in Indian equities they are routine. Before reading anything into one, check whether the whole market gapped — a 1.5 per cent gap down across every stock on your watchlist is a global cue, not five separate company stories.
- how do I tell a runaway gap from an exhaustion gap
- There is no certain answer on the day, because the two look identical and mean opposite things, but three checks help: where in the move the gap falls, what the following sessions do, and how extreme the volume is. A gap early in an advance leans runaway; a gap in week nine after the stock has already doubled leans exhaustion. Record volume followed by wide-ranging candles that go nowhere — heavy activity, no progress — is the clearest exhaustion tell available.
- island reversal pattern meaning
- An island reversal is a small cluster of sessions isolated on both sides by gaps: price gaps away from the trend, trades in a tight range, then gaps back the other way, leaving that cluster stranded. Everybody who bought or sold inside it is trapped with no intervening trade connecting them to the rest of the chart, which is why it is treated as a strong reversal signal. The gaps on either side do eventually fill, but usually only well after the reversal has run.