Gap Up
A gap up occurs when a stock opens above the previous day's high, creating a visible "gap" or empty space on the chart where no trading occurred. Gaps happen because of overnight news, earnings reports, or pre-market activity that shifts sentiment before the regular session opens. They can signal strong bullish momentum, but context matters — gaps at new highs vs. gaps filling previous drops behave differently.
Gap Up candlestick pattern diagram
Pattern Anatomy
- The current candle opens above the previous candle's high
- This creates a price "gap" — a range where no shares were traded
- The gap is the space between the previous candle's high and the current candle's open (or low, if the current candle's low is also above)
- Gaps can be "filled" later if price returns to trade through the gap area, or "unfilled" if price continues higher
How to Interpret
- Breakaway gap: Occurs at the start of a new trend, often on high volume — bullish signal
- Continuation/runaway gap: Appears in the middle of an existing trend — trend acceleration
- Exhaustion gap: Appears near the end of a trend, often on declining volume — potential reversal
- Common wisdom: "gaps get filled" — statistically many gaps do eventually fill, but some never do
- Earnings gaps are the most common catalyst; pre-market gaps on no news are often weaker
How Engulfy Detects the Gap Up
- Only detected on daily stock timeframe (StockDaily processing type)
- Compare today’s Open price to yesterday’s High price
- If today’s Open > yesterday’s High, a Gap Up is detected
- Note: Engulfy uses the previous trading day’s candle (not the previous candle in the current timeframe) for gap detection
Gaps are only meaningful in markets with distinct trading sessions (stocks). Crypto and forex trade 24/7 or nearly so, making true gaps rare. Engulfy only scans for gaps on daily stock data.
Expert References
- Thomas Bulkowski classifies gaps into breakaway, continuation, and exhaustion types. His research found that about 70% of all gaps eventually get filled (price returns to the gap area), but breakaway gaps on high volume are least likely to fill.
- Edwards & Magee, Technical Analysis of Stock Trends — extensively cover gap theory and classification as a core component of chart analysis.
Controversy & Limitations
- "Gaps always fill" is an oversimplification — while many do, breakaway gaps at the start of major moves can remain unfilled for years
- Gap detection on daily candles doesn't account for pre-market/after-hours trading where the gap may have been partially filled
- Engulfy only detects gaps on stock daily data, not on weekly/monthly or crypto/forex