What Is a Price Gap in Trading?

A price gap happens when an asset opens at a different level from where it previously closed, leaving a blank space on the chart. It’s like the market skipped a beat, and in that silence, something important usually happened. This could be a sudden surge of optimism, a major news release, or an overnight sentiment shift.

Price gaps often signal a strong shift in supply and demand, making them highly relevant to short-term and swing traders. Let’s learn more about them.

Different Types of Price Gaps: EOD, Weekend, and More

Not all price gaps are created equal. Depending on when they appear, gaps can offer different clues about what’s driving market sentiment and how traders might respond.

Here are the main types of price gaps you’ll come across:

End-of-Day (EOD) Gaps

These occur when an asset closes at one price and opens the next trading session at a noticeably different level. Common in stocks and indices, EOD gaps often reflect news released after market hours like earnings reports, economic data, or geopolitical events. Since there’s no active trading during the downtime, the market “reprices” at the open.

Weekend Gaps

Weekend gaps show up when markets close on Friday and reopen on Sunday night (or Monday morning, depending on the asset). Forex traders know these well. Political headlines, central bank updates, or global events unfolding over the weekend can cause the price to jump or drop significantly before trading resumes.

Intraday Gaps 

While less dramatic, gaps can also happen during the trading day, typically after major announcements or sudden shifts in order flow. These are less predictable but still worth watching.

Other Gaps Worth Noting

While end-of-day and weekend gaps are the most common, there are a couple more to keep on your radar:

• Market Open Gaps happen when the market opens after a pause, often fueled by news or pent-up orders placed during off-hours. These gaps can resemble EOD or weekend gaps, but may also appear after brief trading halts.
• Holiday Gaps form after extended breaks in trading, like national holidays. Because markets are closed longer than usual, the reopening often brings a sudden burst of price movement based on accumulated sentiment or delayed reactions to global events.

Each type tells a different story. An EOD gap might point to overnight speculation, while a weekend gap could reflect larger macro forces. Recognizing the timing and context of a gap helps traders decide whether to act quickly, wait for confirmation, or avoid jumping in altogether.

What Causes Price Gaps in the Market?

Price gaps might look random on a chart, but they rarely happen without reason. They’re usually a direct response to shifts in sentiment or sudden changes in supply and demand, and understanding the causes behind them can give traders a serious advantage.

Here are the most common causes of price gaps:

• News Releases and Earnings Reports: Markets move on information, and when big news drops outside of regular trading hours, gaps form. Earnings surprises, merger announcements, product launches, or scandals can all trigger sharp repricing. For stocks in particular, the earnings season is a prime time for gap action.
• Economic Data and Central Bank Decisions: Major economic indicators, like inflation, employment figures, or interest rate changes, often cause gaps, especially in forex and indices. When central banks surprise the market or hint at policy shifts, price gaps at the next open are a common reaction.
• Geopolitical Events and Natural Disasters: Unexpected events like wars, elections, or natural disasters can cause panic or optimism, depending on the context. These events tend to break through technical levels, leaving behind noticeable gaps on the chart.
• Low Liquidity and Overnight Sentiment: Markets that trade 24/5, like forex, still experience thin liquidity during certain hours. When large orders are placed during these low-volume times, or when sentiment quietly shifts overnight, the next active session may open with a gap.

These are just a few of the reasons why price gaps happen. The key for traders is not just to notice the gap but to ask why it formed. That’s where the real insight begins.

On 9 March 2020 the S&P 500 opened over 100 points below the prior close, an overnight “breakaway” gap driven by escalating COVID-19 fears and an oil-price shock which kicked off a cascade of panic selling. 

Because price failed to revisit the gap right away, chart-readers view that unfilled zone (≈2,970) as fresh resistance and confirmation that bearish momentum had taken charge.

Common Price Gap Patterns Traders Watch

Not all gaps are equal; some mark the start of a trend, others signal the end of one. Over time, traders have identified recurring price gap patterns that tend to follow certain behaviors. Knowing how to recognize these can help you decide when to jump in or stay out.

Breakaway Gaps

These happen at the beginning of a new trend, often after a long period of consolidation. A breakaway gap usually forms when strong news breaks a stock or currency pair out of a range. Because it reflects a clear shift in sentiment, traders often see it as the start of momentum and look for confirmation to follow the move.

Runaway (or Continuation) Gaps

Runaway gaps show up in the middle of a trend, signaling that the market still has energy to push further. They’re often caused by renewed interest, strong volume, or fresh news that supports the existing direction. For trend-following traders, these gap trading chart patterns can offer a solid entry point.

Exhaustion Gaps

Exhaustion gaps come at the end of a trend when the last push fails to find support and price quickly reverses. This is usually a sign that the market is overextended, and momentum is running out. They often trap late buyers or sellers, making them risky if misread.

Common Gaps

True to their name, common gaps aren’t tied to major trends or news; they’re usually short-lived and tend to get “filled” quickly. These gaps often form within a range and lack the volume or force of other types, making them less reliable for long-term setups.

How Traders Analyze Price Gaps for Signals

Spotting a gap is easy. Knowing what it means is what separates experienced traders from the rest. Here’s how savvy traders break it down:

Volume Confirmation

• Gaps with high volume are taken more seriously as they suggest conviction behind the move.
• Low-volume gaps are often unreliable and prone to quick reversals.

Trend Context

• A gap that aligns with the existing trend often signals continuation.
• A gap against the trend may point to exhaustion or reversal, but needs extra confirmation.

Gap Fill Probability

• Some gaps, especially common or exhaustion gaps, tend to get "filled" as price retraces.
• Watching how price behaves after the gap helps traders see whether to fade the move or follow it.

Support and Resistance Zones

• A gap that breaks above resistance or drops below support can signal a strong directional shift.
• If a gap opens into a resistance zone and stalls, it might be a false breakout.

Follow-Up Candles

• Traders often wait for the first few candles after the gap to confirm direction; hesitation or reversal patterns can be telling.

Price Gap Trading Examples

Below are two price gap trading examples that show how different setups can unfold.

Example 1: Breakaway Gap on Earnings

A tech stock closes at $120 and opens the next day at $128 after strong earnings. Volume surges, and the price continues climbing through the morning.

• Setup: Breakaway gap with strong volume
• Strategy: Gap and go. The trader enters shortly after the open with tight risk controls
• Result: Price trends upward and reaches $135 before pulling back

Example 2: Weekend Gap in Forex

EUR/USD closes Friday at 1.1000. Over the weekend, political uncertainty in Europe sparks risk aversion. The pair opens Monday at 1.0950.

• Setup: Weekend gap triggered by geopolitical news
• Strategy: Gap fill. A short-term reversal is expected
• Result: Price climbs to 1.0990 during the London session

Context is everything. The direction, volume, and overall market tone all help determine whether a gap becomes a trading opportunity or a trap.

Risks You Need to Know

While trading gaps can be profitable, it also comes with real risks, especially if you’re chasing moves without a plan. Here are the key risks of gap trading to keep in mind:

• False Signals: Not every gap leads to a trend. Some close quickly, trapping traders who jumped in too early.
• High Volatility: Gaps often attract heavy volume and sharp price swings, making it easy to get stopped out.
• Slippage: Fast-moving markets can result in poor order fills, especially around the open or after major news.
• Overtrading: Seeing a gap doesn't always mean it's worth trading. Forcing setups can lead to avoidable losses.

Many gap trading mistakes happen when emotion takes over: chasing price, skipping confirmation, or ignoring the broader market context. So, should you trade price gaps? If you’re methodical, patient, and understand the risks, they can absolutely be part of your strategy.