Trading glossary
Price gap
By the PatternX team · Published
Definition
A price gap occurs when a market opens noticeably above (gap up) or below (gap down) where it last traded, skipping a range of prices with no trades in between. In stocks, gaps most often form between one session's close and the next open.
Also called: gap up, gap down
How it's measured
Gap % = (open − previous close) ÷ previous close × 100
A full gap opens beyond the previous bar's entire range, above its high or below its low. A partial gap opens beyond the previous close but inside that range. Before the official open, traders track the gap as the current premarket price against the previous close.
Technical analysts also label gaps by context: common gaps inside a trading range, breakaway gaps out of a pattern, runaway gaps in the middle of a trend, and exhaustion gaps near the end of one. These labels are far easier to apply in hindsight than in real time.
Why it matters
A gap squeezes a lot of repricing into one moment. Orders resting inside the skipped range don't fill at their prices: a stop-loss that becomes a market order fills at the first available price beyond the gap. Chart levels such as a breakout line can be jumped entirely. Some traders watch whether price returns to the pre-gap close, a "gap fill", but nothing forces it to.
Example
For example, you short a hypothetical stock at $10.00 with a stop at $10.30, planning to risk 3%. Overnight news sends it to open at $10.80. The stop triggers at the open and fills near $10.80: a loss of about 8%, nearly three times the plan, before costs.
Common mistakes
- Assuming a stop caps the loss through a gap.
- Calling a gap breakaway before the move has confirmed it.
- Ignoring the volume behind a premarket gap; a gap built on a few hundred shares says little.
How PatternX uses it
In Momentum Lab, Premarket Momentum Breakout measures each stock's move against a reference, by default the previous close, so a premarket gap is exactly what it watches. The default trigger is 5%, and a stock already seen more than 8% from its reference is skipped as "Moved Too Far". Momentum Reversal looks for stocks whose premarket extreme reached at least 8% and that then start to retrace. Gaps are also one reason a trailing stop in Momentum Lab is not a maximum loss: when price jumps through the stop level, the exit can only fill at a worse price. Lists of the day's biggest movers are covered in premarket gainers and losers.