What is Gap?
A price gap occurs when the market opens significantly above or below the previous close without trading through the interval.
Formula
Gap Up Example: Day 1 Close: ₹100 Overnight: Positive earnings announced Day 2 Open: ₹115 (gap up) Chart Shows: Day 1: Candle top at ₹100 Day 2: Candle bottom at ₹115 Gap: ₹100-115 range with no trades Gap = Strong bullish sentiment
Indian market context (NSE)
Reference levels: Nifty 50 at 24,300, Reliance Industries at ₹1,300, Bank Nifty futures at 55,000 (lot size 30). Examples below show how Gap shows up on Indian index, equity, and futures books — update to live quotes in your journal.
Nifty 50 perspective
Gap on Nifty (24,300): on the 15-minute chart, combine with session VWAP and 9:15–10:00 liquidity — index gap signals misfire on expiry Tuesdays without volume confirmation.
Reliance Industries perspective
Gap on Reliance at ₹1,300: daily vs hourly settings diverge around results and ex-dividend dates; note corporate events in journal when gap readings spike.
Bank Nifty futures perspective
Gap on Bank Nifty futures (55,000): first-hour signals differ from post-14:30 behaviour; avoid standalone entries when banking names lead the move.
How to validate
- Validate Gap readings by session tag — open hour stats differ from midday.
- Check behaviour on gap-up/gap-down days separately on Nifty tags.
- Correlate with India VIX buckets (calm vs elevated) before changing rules.
- Confirm liquidity notes were filled on fast-market days.
How to track in TradeLyser
- Tag session phase and liquidity state on each trade influenced by Gap.
- Daily journal: one line on market structure context (gap, range, trend).
- Filter analytics by session tag during monthly review.
- Note India VIX at session open when structure rules depend on volatility.
Best practices
- Pre-define how Gap maps to session tags each quarter.
- Reduce size on expiry and event sessions when structure breaks.
- Journal gap days explicitly — averages hide gap risk.
- Align structure tags with India cash session hours (9:15–15:30).
Common pitfalls
- Applying midday rules to the opening 15 minutes without adjustment.
- Trading illiquid names with the same Gap assumptions as Nifty.
- Forgetting overnight gap risk on “intraday” tags.
- Over-tagging — so many structure labels that review becomes noise.
How to use this in TradeLyser
Daily note: gap % and global cue. Monthly review per gap strategy tag.
Related terms
After-hours trading happens outside standard exchange hours with thinner liquidity and wider spreads on markets that offer it.
Day trading opens and closes positions within the same session, avoiding overnight gap risk on cash products.
A stop loss is a pre-defined exit when the market moves against you by a set amount. It caps loss per trade when fills match your plan.
Volatility quantifies variability — in prices (historical/realised) or in option premiums (implied). Higher volatility means wider expected swings over a horizon.
FAQ
What is a gap in trading?
A gap occurs when price opens significantly higher (gap up) or lower (gap down) than the previous close, creating empty space on the chart. Gaps result from overnight news, earnings, or pre-market activity.
Do gaps always fill?
Not always, but many do. Approximately 70-80% of gaps fill eventually, but 'eventually' can be days, weeks, or months. Continuation gaps (breakaway) often don't fill; exhaustion gaps fill quickly.
What causes gaps?
Earnings announcements, news events, analyst upgrades/downgrades, global market moves, and pre-market trading cause gaps. Supply-demand imbalance at open creates the gap.
How do you trade gaps?
Gap and go: Trade in gap direction if momentum continues. Gap fill: Fade the gap expecting price to fill it. Gap hold: Enter if gap holds and becomes support/resistance.
What are the different types of gaps?
Breakaway gaps (new trend start), runaway/continuation gaps (mid-trend), exhaustion gaps (trend end), and common gaps (insignificant, in ranges). Type determines trading approach.
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