Glossary / Market structure

Gap

Also called: gap up · gap down · overnight gap

A gap is a discontinuity between one session's closing price and the next session's opening price, where the market reopens at a level with no trading in between. Gaps up and gaps down are named for the direction of the jump.

How it is measured

How is gap measured?

Subtract the previous session's close from the current session's open. Expressing the difference as a percentage of the previous close makes gaps comparable across securities. The measurement is exact and unambiguous — unlike most chart concepts, there is nothing to draw or choose.

Why it matters

Why does gap matter to a swing trader?

Gaps exist because information keeps arriving while the market is closed, and the reopening price is where the accumulated overnight orders clear. For a swing trader holding across sessions this is the structural exposure worth understanding: a stop order resting below the market does not execute at its trigger price when the market reopens beneath it — it becomes an order at the reopening level, wherever that is. Scheduled events like earnings reports concentrate that exposure into known dates.

Related

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Risk disclosure · Full methodology

Related terms

Earnings surprise
An earnings surprise is the difference between a company's reported result and the consensus analyst estimate for that period.
Volatility
Volatility measures how much a security's price varies around its own average over a period.
Stop-loss order
A stop-loss is a resting instruction to a broker that becomes active when price reaches a specified trigger level.
Breakout
A breakout describes price moving beyond a level that had previously contained it — a prior high, a prior low, or the boundary of a range price had been oscillating inside.

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General information about market vocabulary, written to be descriptive rather than prescriptive. Not investment advice — see the risk disclosure.