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THE MARKET WHISPERER 31 5

Trading Gaps

First we need to define the term “gap.” It is the difference between one
day’s closing price and the next day’s opening price. When a gap forms, the
first trade of the day will be higher or lower than the closing price of the
previous day.
• A GAP UP forms when the stock opens at a higher price than the

previous day’s close
• A GAP DOWN refers to an opening price which is lower than the

previous day’s close
In fact, a gap almost always forms, and the first trade of the day in any
stock will be different even by one cent than the previous day’s close. Small
gaps are insignificant, so we will describe how the more fundamental gaps
come into being. These are usually in the range of a half-percent or more.
Why would a price open differently than the previous day’s close?
Usually this is the result of news or rumors circulating between closing time
and the next day’s opening of trade, such as when a company publicizes its
financial reports during the after hours. In other cases, it may be no more
than a pullback from a day of sharp lows or highs, or due to market news
that is not related to the stock itself but to the mood of investors.

Gaps Almost Always Close

Gaps have expectable behaviors. This means you need to learn how to
handle them, whether you are holding stock you bought the day before
and which opens the new day with a gap, or whether you are planning an
entry into a new stock opening with a gap.

SMART Most gaps fill: 80% of gaps fill on the day of trading in which
MONEY they come into being, and 90% close within ten days.

The most important information you need to know concerning gaps is
that 80% of them fill on the same day they developed, and 90% are filled
within ten trading days. For example, if a stock opens with a gap up, it
is likely that during the same day of trading it will drop to the previous

day’s close, thereby closing or filling the gap. The opposite is true for a