Gap is a place where no trading takes place. It happens due to good or bad news coming for the company. If the news is good during the day there may a gap up trade or if the news is negative for the company there will be gap down trade during the day. Gap may happen when the market opens the next day if there is a positive news like change of govt policy which may provide positive outlook for the company and vice versa. Gaps happen normally day to day or over the weekend.
Gap is named from the location at which it comes. Either trending or non trending. There are 4 types of gap. a) Area gap which is non trending gap as it comes in a place where the trend is sideways. This gap normally gets filled in the course of time as there is no real pressure either from bears or bulls b) Breakout gap is a trending gap and it forms at the start of the new trend. This gap does not fill because the bulls are strong in the uptrend The volume at the gap should be high to qualify as a breakout gap. c) Runaway gap forms in between a new uptrend when the bulls are very strong and hence this gap don’t fill. d) The Exhaustion gap when the market opens gap up and due to selling pressure for the bears the price moves below the previous days
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