Gap (Gap Up / Gap Down)

A price discontinuity on a chart where a stock opens significantly higher (gap up) or lower (gap down) than the previous day's close, with no trading occurring in between. Gaps are usually caused by after-hours earnings reports, analyst upgrades or downgrades, or major overnight news. Traders study gap behavior because gaps often "fill" -- meaning price eventually returns to the pre-gap level -- though some gaps mark the beginning of a strong new trend.