Market Gaps Explained: Why Price Jumps Overnight
When you study market gaps, you realize price isn’t smooth. It jumps. Sometimes a little. Sometimes enough to ruin someone’s career. A gap is just the market repricing instantly when no one was trading in between.
What a Market Gap Really Is
A gap is a price jump caused by a lack of trading between two points. No trades occurred in that price range, so the chart skips it.
This ties directly into Market Liquidity, because gaps only happen when liquidity disappears and the market must reprice fast.
Why Do Gaps Happen?
Here are the blunt reasons:
- News dropped when markets were closed
- Overnight liquidity was too thin to absorb order flow
- Large players executed size off-hours
- Market repriced based on global sessions
| Gap Type | Description | Implication |
|---|---|---|
| Breakaway Gap | Starts a new trend | Often doesn't fill immediately |
| Continuation Gap | Occurs mid-trend | Shows momentum is strong |
| Exhaustion Gap | Appears at trend extremes | Often reverses soon after |
Do Gaps Always Fill?
No. Anyone who tells you “all gaps fill” is repeating something they heard from a guru who blew up years ago. Gaps fill when the market returns to that price because value shifts — not because of destiny.
Pair this idea with Market Regimes, because whether a gap fills often depends on whether the market is trending or rotational.
How to Trade Around Market Gaps
Here’s the blunt playbook:
- Don’t fade breakaway gaps immediately — strong hands caused them.
- Do fade exhaustion gaps with confirmation — weak hands caused them.
- Watch liquidity — gaps near low-volume areas behave differently.
This is directly related to Liquidity Pools, because gaps often form or fill at the edges of major liquidity pockets.
The Bottom Line
If you understand market gaps, you stop getting blindsided by overnight moves. You start anticipating when volatility will hit, whether a gap is dangerous, and whether a return to that level actually makes sense.