Market Gaps: What They Say, What They Hide & When to Trade ThemIt’s 9:30 a.m. You sip your coffee, glance at the chart, and there it is. Your stock has leapt several dollars higher (or lower), skipping right over the previous day’s closing price.
Welcome to the world of market gaps — those mysterious spaces between yesterday’s close and today’s open that make traders question both their strategy and their life choices.
A market gap isn’t a missing candle but the story of what happened while you were sleeping (or ignoring the news). It’s the sum of after-hours trades, global market sentiment, overnight earnings, and sometimes a rogue tweet.
The question is: should you trade them — or stay far, far away?
🌍 Why Gaps Happen
Gaps exist because markets never really sleep. When one exchange closes, another is already open somewhere else, digesting the same news through a different timezone. Add in pre-market trading, futures markets, and weekend surprises, and you get an ecosystem where prices constantly readjust (even when you can’t click “Buy”).
Most gaps fall into one of three categories:
Breakaway gaps – when new information changes everything (earnings beats, mergers, surprise rate cuts).
Runaway gaps – the “momentum monsters” that happen mid-trend when traders can’t get enough.
Exhaustion gaps – the final gasp before a reversal, when optimism or panic reaches peak saturation.
Understanding which one you’re looking at is half the battle. The other half? Not taking the bait too early.
💥 What Gaps Reveal (and Conceal)
We’re in the earnings season now so it’s pretty normal to spot a gap on the charts.
A gap higher often signals optimism: strong earnings, bullish guidance, or a macro tailwind. But it can also mean traders are front-running euphoria — piling in before the market can catch its breath.
Similarly, a gap lower screams heavy selling, but sometimes it’s just overreaction dressed as disaster. Take for example the recent showing from CoreWeave NASDAQ:CRWV . The neocloud beat on both top- and bottom-line expectations. And yet, the stock fell 8% in after-hours .
Typically, if prices hold above or below the gap for several hours or sessions, that’s confirmation that traders are validating the move. But if it’s filled quickly (the price retraces back to the previous close), it means the reaction faded faster than your New Year’s resolution.
🕳️ The Weekend Trap
Weekend gaps deserve their own warning label. Markets close Friday afternoon, and by Monday, the world’s had 48 hours to produce headlines, scandals, or White House drama.
If you hold high-risk positions over the weekend, you’re effectively saying, “I’m okay with the market repricing everything I own before I wake up Monday.” Sometimes that works — you wake up richer. Sometimes it doesn’t — and your stop-loss never had a chance.
Fast fact : Stop losses don’t work during a gap because the price jumps over your stop level — there’s no trading in between, so your order can only trigger at the next available price, often far worse than expected.
🧭 How (and When) to Trade Gaps
So how do pros handle them? Like most things in trading — with patience, context, and a healthy respect for traps.
Wait for confirmation . Don’t chase the open. See if volume supports the gap or if it’s just knee-jerk volatility.
Look left . Check past support/resistance levels — gaps tend to gravitate toward old battle zones.
Mind the news . If the gap is driven by an actual event (earnings, guidance, policy change), the odds of it holding improve. Make sure to stay on top of market-moving news .
Avoid FOMO . The first 15 minutes of trading are often chaos. Let the emotional traders clear out before you step in.
Remember the fill rule . When in doubt, assume gravity wins eventually — most gaps don’t stay open forever.
🔮 What Gaps Really Mean
Gaps are the market’s way of saying, “Something happened — pay attention.” They’re emotional, fast-moving, and occasionally misleading. But they also reveal where sentiment can truly shift — the moments when traders collectively decide that yesterday’s price was wrong.
Handled well, gaps can offer some of the cleanest trades on the chart. Handled poorly, they’re an expensive lesson in humility.
So the next time you wake up to a market that’s sprinted ahead, take a breath. The space between two candles isn’t a void. It’s a story. Read it before you react.
Off to you : How do you handle gaps? Share your approach to these market events in the comments!
