Price gaps appear when a stock opens far higher or lower than its last closing price. A gap that opens higher is called a bullish gap. A gap that opens lower is called a bearish gap.
These gaps tell traders how strong buyers or sellers are. A big bullish gap often means strong buying pressure. A big bearish gap usually shows strong selling pressure.
Traders can turn gaps into support or resistance zones. A bullish gap can act as a floor where price may bounce back up. A bearish gap can act as a ceiling that may push price down.
To make the gap signals clearer, many traders add moving averages. The averages show the overall direction of the market. When a gap lines up with a moving average, the signal becomes stronger.
Fibonacci retracements are another helpful tool. They mark possible pull‑back levels after a gap. By combining gaps with Fibonacci lines, traders can spot where price might turn.
One common pattern is the "gap‑and‑run." After a gap, price keeps moving in the same direction for many days. The opposite pattern is "gap‑and‑fail," where price quickly reverses after the gap.
By drawing these zones on a chart, traders keep track of important levels. As the market moves, the zones help decide when to enter or exit a trade.
This guide uses real‑world examples from well‑known companies and the S&P 500 to show how each type of gap works.
Source: Materials provided by https://articles.stockcharts.com.Note: Content may be edited for style and length.