Entry Point Trading / Learn / Gap Trading
Trading education

Gap Trading

A gap is when a stock opens at a materially different price from its previous close, usually driven by news that arrived while the market was shut.

In one line: A gap is when a stock opens at a materially different price from its previous close, usually driven by news that arrived while the market was shut.

What it is

A gap appears on a chart as a jump — price opens above (gap up) or below (gap down) the prior session's close, with no trading in between. Gaps form because information doesn't wait for market hours: earnings, guidance, upgrades, or macro news hit overnight, and buyers and sellers reprice the stock the moment it opens.

How it works

Traders read gaps a few ways:

  • Gap-and-go: a strong gap on heavy volume that keeps running in the gap's direction — a breakout-style continuation.
  • Gap fill: price reverses and trades back to close the gap (returns to the prior close), a common mean-reversion tendency.
  • Exhaustion gap: a gap late in an extended move that marks the end rather than a new leg.

The key questions are why the gap happened and how price behaves at the open. A gap on real news with strong volume behaves very differently from a thin, newsless gap that tends to fill.

Worked example

Example

A large-cap closes at $200. Overnight it reports strong results and lifts guidance, and it opens the next morning at $224 — a gap up of 12% on volume far above average. In a gap-and-go read, a trader watches whether the open holds; if price builds above $224 on continued volume, the move may extend. If instead it stalls and slides back toward $210, the gap is partially filling. A stop below the opening range defines the risk either way — gaps are fast, so pre-planned exits matter more than usual.

Why it matters

Gaps concentrate a lot of information and emotion into the open, producing some of the largest, fastest moves — and some of the most dangerous. Because they're driven by news, they're inherently less predictable, which is why sizing and stops matter so much. Gaps are also why holding through earnings is a coin-flip: an overnight gap can leap straight past any stop.

Entry Point Trading flags event risk like imminent earnings in its daily read so a gap doesn't blindside a position — and grades every call in the open.

Keep learning

Related concepts

Breakout Trading
Trading a move through a defined level on rising participation.
Earnings Season
The quarterly reports that move stocks the most.
Volume Analysis
Using trading volume to confirm or doubt a price move.
Volatility and the VIX
Measuring fear and expected market swings.
Stop-Loss
A pre-planned exit that caps the loss on a trade.
Stock Signal
A structured buy/sell/hold call — and what a good one must include.

← Back to the full EPT Learn hub

Common questions

FAQ

Do gaps always get filled?
No — the idea that 'gaps always fill' is a myth. Many gaps do fill eventually, especially thin, newsless ones. But strong gaps driven by real news (like an earnings beat and raised guidance) often keep running and may not fill for a long time, if ever. Whether a gap fills depends on why it happened.
Why is gap trading risky?
Because gaps are driven by news and open with fast, emotional price action, they're less predictable than normal setups and can move against you quickly. An overnight gap can also jump past a stop-loss, causing a larger loss than planned. Tight position sizing and pre-planned exits are essential when trading gaps.

Learn the process by watching it live — free.

Entry Point Trading's free daily signal shows the concepts on this page applied to real names — scored tickers, macro context, and calls we grade in the open, hits and misses. It's the fastest way to see how it actually works.

No spam. Unsubscribe anytime.