What Is a Gap?
A gap is a break in price continuity where the opening price is significantly different from the previous close. Price “jumps” over a range, creating a visual gap on the chart.
In stocks, gaps are common and significant. In forex, they’re smaller but still meaningful at session transitions.
Types of Gaps
Breakaway Gap:
- Occurs at the beginning of a strong trend
- Price gaps in the direction of the trend
- Rarely fills back
- Signals conviction by large players
Continuation Gap:
- Occurs mid-trend
- Reinforces the trend direction
- Usually fills partially but not completely
- Momentum signal
Exhaustion Gap:
- Occurs at the end of a trend
- Final surge before reversal
- Almost always fills
- Bearish or bullish reversal signal (depending on direction)
Common Gap:
- Random gaps in consolidation
- Usually fills quickly
- Lower probability setups
- Less important than other types
Gap Fill Probability
Different gaps have different fill rates:
| Gap Type | Fill Rate | Timeline |
|---|---|---|
| Exhaustion | 85%+ | Hours to days |
| Common | 70%+ | Hours to weeks |
| Continuation | 50%+ | Days to weeks |
| Breakaway | 20%+ | Weeks or never |
Exhaustion gaps are the most reliable trade setups.
Trading Gap Fills
Setup:
- Identify a gap (price opens significantly above or below previous close)
- Classify the gap type
- If exhaustion or common gap, expect a fill
- Enter at the gap edge with target at the gap open
- Stop loss beyond the gap low/high
Example:
- Friday: EURUSD closes at 1.0850
- Monday: Opens at 1.0900 (50-pip gap up)
- Assume exhaustion gap based on context
- Sell at 1.0900 with target at 1.0850
- Stop loss at 1.0920 (above gap)
Trading Gap Breakouts
Setup:
- Price gaps in direction of a trend
- Expected that price continues (doesn’t fill immediately)
- Enter in direction of the gap
- Stop loss at the gap opposite side
- Target at next resistance/support
Example:
- Downtrend, price gaps down to 1.0800
- Enter short at 1.0800 with stop at 1.0850
- Target at next support 1.0750
Gaps at Session Transitions
Forex gaps happen between sessions:
- US close to Asia open — usually fills during Asia session
- Asia close to London open — often creates momentum that doesn’t fill
- Friday close to Monday open — weekend gaps, often filled early week
Track which session transitions create fillable gaps in your trading.
Gap Trading in Your Journal
Track:
- How many gaps did you see?
- Which types (exhaustion, continuation, breakaway)?
- How many filled? How quickly?
- Did you trade the fills? What was your win rate?
- Were your stops blown out before the fill?
Over time, you’ll calibrate if gaps are tradeable in your system.
Common Gap Trading Mistakes
- Assuming all gaps fill — breakaway gaps don’t
- Ignoring market context — is it trending or ranging?
- Using oversized risk — gaps can reverse before filling
- Trading immediately — wait for confirmation
- Not identifying gap type — context determines the strategy
Gap Fades vs. Gap Continuations
- Gap fade — trading the gap fill (mean reversion)
- Gap continuation — trading in the direction of the gap (momentum)
Both work, but context determines which is higher probability. Strong trends favor continuations; weak trends favor fades.
The Takeaway
A gap is price telling you something happened. Your job is to interpret what and decide if you want to fade (bet on fill) or chase (bet on continuation). Exhaustion gaps have high fill rates. Breakaway gaps have low fill rates. Know the difference, and gaps become a reliable part of your system.
Most traders lose money trading gaps because they don’t identify the type correctly. Identify the type, then trade with that edge.
