Why Price Gaps Form—and Whether They Have to Fill
Distinguish the gap between the previous close and today's open from a gap between nonoverlapping daily ranges. Learn how corporate actions affect charts and why gap-fill claims have limits.
A price gap is a visible separation in prices between the trading periods being compared. First establish whether you mean the difference between the previous close and today's open or the absence of overlap between two days' high-low ranges. A gap alone does not mean price must revisit its previous level.
Separate the two definitions of a gap
An opening gap compares today's open with the previous close. To identify a completely empty interval between price ranges, however, compare the ranges of two candles—for example, whether today's low is above the previous day's high. Even after a higher open, an intraday decline may create overlap with the previous day's range. Specify the definition instead of using only the word gap. Also check the trading session: an interval that looks empty on a regular-session chart may show some trades on a chart that includes extended hours.
Distinguish disclosure effects from data adjustments
New information released while trading is closed can lead to a different valuation at the next trade. But not every sharp discontinuity on a chart reflects good or bad news. First check for stock splits, dividend treatment, and data errors. Comparing two charts with different adjusted-price settings can make a gap appear on only one of them. Review corporate-action markers for the date alongside unadjusted price data, and explain the event's economic meaning separately from its effect on the chart display.
What to check before treating an empty interval as a price target
Collecting only cases where prices returned to their previous levels can make gaps appear to fill every time. Include gaps that did not fill and cases whose observation periods have not yet ended. Define whether a partial retracement counts as a fill or whether price must reach the opposite edge. When examining movement after a gap, the daily high-minus-low range misses part of the picture. Also consider a range measure that includes the distance to the previous close to capture the overnight change. A gap's location is descriptive information; it does not guarantee the timing or probability of a retracement.
Worked example
Hypothetical example: If yesterday's high was 20,200 won and its close was 20,000 won, while today's open is 21,000 won and its low is 20,600 won, the opening gap is 5% and the empty interval between the two daily ranges is 400 won. If the low later falls to 20,100 won, the ranges overlap, but price has not reached the previous close of 20,000 won. Whether the gap has filled depends on your definition. The levels of 20,600 won and 20,000 won are also different reference points for calculating losses.
What to check
- Define whether the comparison is close-to-open or between two candles' price ranges.
- Use consistent inclusion of regular and extended trading hours.
- Check data adjustments for stock splits and dividends.
- Do not calculate a gap-fill rate while excluding unfilled cases or omitting the observation horizon.
Sources and primary materials
This is educational material about research methods. For an actual company decision, verify the filings and primary sources for the relevant period.