Price charts often have blank spaces known as gaps. They represent times when no shares were traded within a particular price range. Normally this occurs between the close of the market on one day and the next day’s open.
For an up gap to form, the low price after the market closes must be higher than the high price of the previous day. Up gaps are generally considered bullish.
A down gap is just the opposite of an up gap; the high price after the market closes must be lower than the low price of the previous day. Down gaps are usually considered bearish.
Gaps result from extraordinary buying or selling interest developing while the market is closed. For example, if an earnings report with unexpectedly high earnings comes out after the market has closed for the day, a lot of buying interest will be generated overnight, resulting in an imbalance between supply and demand. When the market opens the next morning, the price of the stock rises in response to the increased demand from buyers. If the price of the stock remains above the previous day’s low throughout the day, then an up gap is formed.
Gaps can offer evidence that something important has happened to the fundamentals or the psychology of the crowd that accompanies this market movement.
Hi,
You’re doing well.