Gap
A jump between one period’s close and the next period’s open with no trading in between.
Also called: gap up · gap down · price gap
In plain language
Gaps form when significant information arrives while the market is closed. The next session simply opens at a new price.
They are the clearest demonstration that a stop loss is a trigger, not a guarantee. A stop inside the gap is filled at the open, potentially far from the stop price.
Gaps are common around earnings, economic releases and weekend news, and are far rarer in markets that trade continuously.
Why it matters
Gap risk is the main reason held-overnight positions deserve smaller size than intraday ones. Your calculated maximum risk assumes continuous prices, and a gap breaks that assumption.
Common mistakes
- Holding a full-size position through a scheduled earnings report with a tight stop.
- Assuming every gap fills, and sizing a trade on that assumption.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
The difference between the price you expected and the price you actually got.
A predefined exit that closes a losing trade before the loss becomes serious.
A company’s scheduled quarterly disclosure of financial results.
An automatic trading pause triggered by an extreme price move.
Trading sessions before the open and after the close, with far less liquidity.