Estimated reading time: 3 minutes

Price gaps occur when the price of an asset at the opening of a new candlestick significantly deviates from the closing price of the previous one. These gaps typically emerge during major news releases, market openings after holidays, or sudden spikes in trading volume.

Professional traders consider gaps not just signs of heightened market activity, but also high-probability trading opportunities—if used correctly.

Types of Price Gaps

1. Common Gap

• Usually appears in sideways or low-activity markets
• Fills quickly and rarely provides strong trading signals

2. Breakaway Gap

• Occurs when the price breaks through a strong support or resistance level
• Marks the start of a new trend
• Rarely fills and indicates a structural shift in the market

3. Runaway Gap (Measuring Gap)

• Forms in the middle of a strong trend
• Signals a continuation of the current trend with increasing momentum
• Often interpreted as a sign of market acceleration

4. Exhaustion Gap

• Appears at the end of a trend
• Accompanied by extremely high volume and emotional trading
• Frequently followed by a rapid price reversal and gap fill

Read More: What is the Breakout Strategy?

How to Use Gaps in Your Trading Strategy

📌 Strategy 1: Gap Fill Approach

• Assumes that the market tends to “fill the gap” over time
• Entry is made anticipating a reversal back to the gap’s origin
• Best suited for common and exhaustion gaps

📌 Strategy 2: Gap & Go

• Ideal for breakaway or runaway gaps
• Entry occurs shortly after market open, once gap strength is confirmed
• Requires high volume and confirmation in lower timeframes

Essential Tips for Trading Gaps

• Always monitor trading volume: Genuine gaps are typically accompanied by significant volume increases
• Factor in the broader trend: Gaps against the dominant trend can be deceptive
• Use technical confirmations such as reversal candlesticks or divergences
• Set logical stop-loss levels: Gaps can result in fast and volatile movements

Best Markets for Gap Trading

• U.S. Stock Market: Due to daily open/close cycles and frequent corporate news
• Cryptocurrencies (4H or Daily charts): While lacking classical gaps, they exhibit gap-like price movements
• Commodities (e.g., gold, oil): Especially during market closures
• Indices: Often show gaps around major economic data releases

Read More: Comprehensive Guide to Trend-Based Trading Strategies

Pros and Cons of Gap Trading

✅ Pros

• Strong signals with high profit potential
• Clear, rules-based strategies
• Quick execution right after market open

⚠️ Cons

• High risk from false gaps or misleading news
• Highly time-sensitive
• Requires experience and precision in gap identification and analysis

Conclusion

Gap trading is a popular and powerful strategy among seasoned traders. When done correctly—by identifying the gap type, analyzing volume, assessing market structure, and using proper technical confirmations—it can lead to highly profitable trades. Gaps can be the start of major trends or signal their end. The key is in your analysis and timing.