If you trade stocks or ETFs, you’ve probably noticed gaps — price jumps on a chart where a stock opens significantly higher or lower than it closed the previous day. For some traders, these gaps are an unwelcome surprise. For others, they’re a valuable signal. But how do gaps affect swing trading?

What Is a Gap on a Chart?

A gap occurs when there’s a significant difference between a stock’s closing price and its opening price the next day. For example:

  • If the stock opens higher, it’s called a gap up.
  • If the stock opens lower, it’s a gap down.

Example:

  • Day 1: Stock closes at $100
  • Day 2: Opens at $105 → gap up of $5

Gaps are common in stocks that react to after-hours news: earnings reports, economic data, or company announcements.

Types of Gaps

  1. Common gap – Typically fills quickly, often without major market impact.
  2. Breakaway gap – Appears at the start of a new trend, breaking out from a consolidation zone.
  3. Runaway (continuation) gap – Forms during a strong trend, confirming momentum.
  4. Exhaustion gap – Forms near the end of a trend, often indicating a possible reversal.

Gaps and Swing Trading

Swing trading focuses on short- to medium-term price movements, usually holding positions for several days to weeks. Gaps can have both positive and negative implications:

When gaps can help you:

  • Breakaway gaps are strong entry signals – they may mark the beginning of a trend.
  • Runaway gaps confirm a trade is moving in the right direction – useful for adding to a position.
  • Gap fill strategies let traders profit when prices return to the previous levels.

When gaps are risky:

  • Overnight risk – Gaps often occur on unexpected news outside of market hours. If you hold positions overnight, a gap could trigger your stop loss or cause sudden losses.
  • Disrupting technical patterns – Gaps can interfere with trendlines, moving averages, and indicators.

Are Charts With or Without Gaps Better?

It depends on your trading style:

  • For technical analysis: Some traders prefer gapless charts (like Heikin Ashi or logarithmic charts) for cleaner patterns.
  • For price action traders: Gaps provide real insight into market sentiment and price behavior.

Tip: Use charts with gaps if you want to fully understand real price action, especially on daily candlestick charts.

How to Use Gaps in Practice

  1. Don’t rely solely on indicators — observe the price action during gaps.
  2. Be mindful of overnight risk, especially with volatile stocks or during earnings season.
  3. Focus on breakaway and exhaustion gaps — they often present strong trade opportunities.
  4. Watch trading volume during the gap — high volume confirms conviction behind the move.

Summary

  • A gap is a price jump between market close and the next open.
  • Gaps can signal strength or weakness depending on the context.
  • Swing traders must account for gaps, as they affect risk, stop-loss levels, and opportunities.
  • Gaps can also be part of a deliberate strategy, such as gap fill or breakout trading.

RELATED ARTICLESMORE FROM AUTHOR