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Key Takeaways
- An opening gap compares the new open with the prior close. A gap between completed ranges compares the new low with the prior high, or the new high with the prior low.
- Earnings, economic news, overnight market movement, and order imbalances can reprice a security before regular trading begins.
- Measure gap percentage from one fixed reference; this example uses the prior regular-session close, so ($86 − $80) / $80 = 7.5%.
- Pick the fill target before the open: the $80 prior close fills the opening gap here, and the $80.40 prior high closes the range gap.
- Choose the setup’s price trigger, order type, entry and invalidation, then size the trade from that plan.
What are gap ups and gap downs?
A gap up is a session that opens above the prior close, and a gap down is a session that opens below it. Gaps form when earnings, economic news, overnight market movement or order imbalances reprice a stock before regular trading begins. Gap percentage is (new open − prior close) / prior close × 100.
Set the session and price reference first. This example uses regular-session open and prior regular-session close.
Opening gaps vs range gaps
An opening gap measures two prices. A full opening gap also clears the prior high for an up gap or prior low for a down gap.
A gap between completed candle ranges requires the new low above the prior high, or the new high below the prior low. That test covers every trade in the new interval, so it can fail even when the open clears the prior high.
Extended-hours and regular-session charts include different trades, so compare prices on one session setting.
Formula
For prior close > 0: opening gap % = (current open − prior close) / prior close × 100. An upward range gap requires current low > prior high; a downward range gap requires current high < prior low.- Positive values are gap ups and negative values are gap downs.
- A chart using extended-hours data can display gaps differently from a regular-session-only chart.
Gap up example: a 7.5% opening gap
A stock closes its regular session at $80 with an $80.40 high. After earnings, the next regular session has O $86, H $86.50, L $83.60 and C $84.
- ($86 − $80) / $80 × 100 = 7.5% opening gap up
- $86 − $84 = $2 fade from the open
- $84 close − $80 prior close = $4 remaining to the opening-gap fill reference; at the $83.60 low, the remaining distance is $3.60
The opening gap is $6, or 7.5%. The $84 close retraces $2, one-third of that distance. The session low retraces $2.40, or 40%. It remains above both the $80.40 prior high and $80 prior close, and the following three displayed sessions remain above those levels.
Opening gap = $86 − $80 = $6, or 7.5%. The completed ranges leave an untraded interval strictly between $80.40 and $83.60, a $3.20 span.
At the $84 close, the retreat from the open is $2, or one-third of the opening gap. At the $83.60 low, it is $2.40, or 40%. The close and low remain $4 and $3.60 above the prior close respectively.
The following three displayed sessions also stay above both reference levels.
What counts as a gap fill?
For the opening-gap plan, a fill means reaching the $80 prior close. For the range-gap plan, the previous range edge is $80.40.
Write the target into the plan before the trade, since a return to $80.40 completes the range-gap fill while leaving $0.40 to the prior close.
How to trade gap ups and gap downs
A gap-and-go plan uses continuation away from the opening reference. A gap-fade plan uses a defined move back toward it. The Opening Range Breakout supplies a way to organize the first interval’s high and low.
Compare the move with Average True Range. In this example, true range is max($2.90, $6.50, $3.60) = $6.50, incorporating the prior-close jump.
Select the trigger, order type, entry, invalidation and target, then calculate size from the plan. See Types of Gaps to connect the gap with its position in the trend.
Sort the ticker’s prints in Options Flow by Heat Score to find the orders that positioned ahead of the gap, then price a continuation trade or a fill back to the prior close in the Options Profit Calculator.
Limitations of gap ups and gap downs
- Decide continuation or fade in advance. A gap sizes the repricing and the follow-through decides the trade: the same 7.5% gap can extend in a gap-and-go move or fill back to the prior close.
- Measure on one session setting. A regular-session chart may show a blank interval, while a chart with extended-hours data can show trading through part of it.
- Name the fill reference in the plan. Here the prior close is $80 and the prior range edge is $80.40, so one rule can count a fill that the other does not.
- Use split- and dividend-adjusted prices. Unadjusted prices around those events can show gaps that no trading produced.
- Choose the order type and trigger before the open. Prices can move quickly away from the opening print, and those two choices decide the actual entry.
Bottom line
A gap up or gap down measures how far a session opened from the prior close, and the prior close and prior range edge give two distinct fill references. Fix the session and reference first, then decide in advance whether the plan trades continuation or a fade and where it is invalidated.
Clear answers
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Sources and Further Reading
How entries are sourced, calculated and updated: editorial methodology.