What are Gap Up and Gap Down in Stock Market?

What are Gap Up and Gap Down in Stock Market

Investor can observe a Gap in stock market trading when a sharp rise or fall in the stock price and when there is no occurrence of trading activity. There might be multiple reasons to observe a gap in the stock price such as positive news released by the company, change in trade analyst’s view, buying or selling pressure between traders, public announcements of the company’s profit etc.

There are two types of gaps in stock market trading

Full Gap-up

Full Gap-down

Partial Gap-up

Partial Gap-down

Gap-up: When the stock price of a company open high that previous day stock price, it is called as gap-up.

Gap-down: When the stock price of company opens low than the previous day stock price, it is called as gap-down. 

Partial gap-up:  Partial gap-up is observed in the stock market when there is rise in the opening prices but it is not higher than previous high price.

Partial gap-down:Partial gap-down is observed in the stock market when the opening price is below the previous closing price, but not below previous day’s low

Types of Gaps

Gaps are divided in to four categories:

Breakaway gaps

Exhaustion gap

Common gap

Continuation gap

 Things to note during gap-trading

Once the stock starts to fill the gap, it will not stop as there will be little or no support or resistance in the market.

Continuation gap and exhaustion gap are different, one should make sure the gap which he will follow.

Note the volume of the stocks as high volume occurs in breakaway gap and low volume occurs in exhaustion gap.

Individual traders decide to trade with the flow of market, whereas institutional investors will be ready to ride the tide and see how it benefits their portfolio during gap up or gap down.

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