Gaps and Gap Analysis

Have you ever wondered what causes gaps in price charts and what they mean? Well, you came to the right place. Just in case, a gap is an area on a price chart in which there were no trades. Normally this occurs after the close of the market on one day and the next day's open. Lot 's of things can cause this, such as an earnings report coming out after the stock market had closed for the day. If the earnings were significantly higher than expected, many investors might place buy orders for the next day. This could result in the price opening higher than the previous day's close. If the trading that day continues to trade above that point, a gap will exist in the price chart. Gaps can offer evidence that something important has happened to the fundamentals or the psychology of the crowd that accompanies this market movement. Before we get into the different types of gaps, here is a chart showing a gap so you will know what we are talking about.