Gap Analysis – 8

Gaps occur because of underlying fundamental or technical factors. For example, if a company’s earnings are much higher than expected, the company’s stock may gap up the next day. This means the stock price opened higher than it closed the day before, thereby leaving a gap. In the forex market, it is not uncommon for a report to generate so much buzz it widens the bid and ask spread to a point where a significant gap can be seen. Similarly, a stock breaking a new high in the current session may open higher in the next session, thus gapping up for technical reasons.