In the context of trading and chart analysis a gap is a huge and sudden change of price in a trading chart.

A price gap menas that there are no quotes between two price levels. The price either increased or decreased.

If, for example, Netflix announces a new blockbuster, which will double sales, no shareholder will sell his shares at the current price. This results in a gap or price jump to the upside. You can see these price jump in the picture above.

Why Do Gaps Happen?

  • Trading breaks because of night time, holidays or weekends
  • Unexpecting breaking news
  • Annual general meetings or dividend payments
  • Acts of terrorism
  • Unusual political happenings
  • Consider Possible Gaps

    As a trader, you should always plan for possible gaps, because an order is not executed within a gap. For example, if you wanted to sell Netflix at $110, you were correctly executed at the next tradable price at $115. In this case, it is positive because you are 5$ better off selling. However, also think about the case when you wanted to buy at 110$, then you will be executed 5$ worse. This risk should be known and taken into account!

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