Gaps & Candle Context

Why stocks sometimes open far from yesterday’s close, the main types of gaps, and how a gap changes the meaning of the candles around it.

What a gap is

A gap appears when a stock opens above the prior day’s high or below the prior day’s low, leaving an empty space on the chart. Nothing traded in that space. Gaps usually happen because news arrives while the market is closed: an earnings report, a big announcement, an analyst change, or a move in the overall market overnight.

A gap tells you that the balance between buyers and sellers changed sharply overnight. How the stock behaves after the open tells you whether that change sticks.

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