Why gaps are filled

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Your Money. Personal Finance. Your Practice. Popular Courses. Part Of. Key Technical Analysis Concepts. Getting Started with Technical Analysis. Essential Technical Analysis Strategies. Technical Analysis Patterns. Technical Analysis Indicators. Trading Strategies Beginner Trading Strategies. Table of Contents Expand. Gap Basics. To Fill or Not to Fill. How to Play the Gaps. Gap Trading Example. The Bottom Line. Key Takeaways Gaps are spaces on a chart that emerge when the price of the financial instrument significantly changes with little or no trading in-between.

Gaps occur unexpectedly as the perceived value of the investment changes, due to underlying fundamental or technical factors. Gaps are classified as breakaway, exhaustion, common, or continuation, based on when they occur in a price pattern and what they signal. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate.

You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. This idiom is used to express the idea that any unfilled, empty spaces are unnatural and goes against the laws of physics and nature. Nature contains no vacuums because the denser surrounding material continuum would immediately fill the rarity of an incipient void.

Well, there are several different theories regarding this but the fact is no one exactly knows why gaps fill. Do gaps always need to close? Well, no. However if we take a look back at the previous Bitcoin gaps it is evident that Bitcoin price likes to come back and fill the gap. Some closes on the opening day, some closes within the next weekend, some takes months to fill and there are few that is still left open. It is evident that any open spaces on charts seem to fill at some point of time.

Traders consider gaps as an interesting marker on a chart. They have high hit rate and so using them on your technical analysis will help you position yourself on the right side of the trade. However taking a trade solely based on this one factor is a wrong move. So do not risk your trade account with just this one strategy. Use proper risk management, set stop losses and be sure to trade safe.

Hope this helps. Apart from this there are other types of gaps which traders use in their technical analysis like for example: Liquidity gap, Breakaway gap, Common gap, Exhaustion gap and Measuring gap. Your email address will not be published. Notify me of follow-up comments by email. I want to be loud and clear:. Since Dow stocks are all sound companies and their prices have overall long term uptrend, most "down" gaps should have got filled. So I only studied "up" gaps.

An up gap is logged when "low" of the day is higher than "high" of previous day day i. Once a gap is logged, I look for how many days it took to "fill" the gap defined as "low" of day k is lower or equal to "high" of day i , or never got filled when k reaches the end of time studied. As you can see from the chart above, the unfilled gap ratios of 30 DJI components have very tight distribution. I think because its relative short history IPO , many up gaps especially the ones generated in current bull market have yet to be filled.

When we exclude V, the distribution is even tighter:. So what's that mean: when a stock price gap is observed, by a chance of