Education · Stage 5 · 04
What a gap is and why it appears
Here is the sentence that fixes most of the confusion about gaps, and it comes straight from the first stage of this path: on a contract that trades almost around the clock, price never jumped anywhere. It walked. You were asleep.
Mak · 4 min read · Stage 5, article 4 of 8
The gap is in the chart, not in the market
The share market closes at 16:00 and reopens at 09:30. The future keeps trading through the night. So when you compare yesterday's close with today's open and find a distance between them, that distance was traded — tick by tick, at three in the morning, by whoever was awake.
What produces the visible hole is the chart's session setting. Ask it to show you only the American hours and it will draw yesterday's close next to today's open with nothing in between, because you told it to hide the part where the travelling happened.
Two places where a gap is genuinely a gap: the weekend, and the short daily break. Those are hours when the contract really is closed, and any news arriving in them has nowhere to go until it reopens.
And the cash index does have real gaps, because the shares themselves were shut. A comparison between the two — a future that traded all night against an index that did not — is where most of the vocabulary around this subject came from.
Why it still matters
Knowing there is no hole does not make it uninformative. Quite the opposite: it tells you exactly what to look at.
A large distance between yesterday's close and today's open means the market moved a long way while few people were watching. From the previous article, that is a one-sided overnight session: positions built cheaply, in a thin book, that the arriving crowd is about to price properly.
So the gap is not a signal. It is a summary of the night, drawn as one line, and the real question is the one the previous article ended on — does the arriving volume support it or work against it.
«Gaps get filled»
You will hear this constantly, and it is worth taking apart rather than repeating or dismissing.
There is a mechanism behind it. Yesterday's session left an area where a lot of trading happened — where the market agreed prices were reasonable. Today opens away from that area on overnight activity alone. Price returning to test it is not mysterious: it is the market checking whether the old agreement still holds now that everyone is present.
And then the part that gets left out:
The days a gap does not get filled are, very often, the days that trend hardest — because a gap that holds is the market announcing that yesterday's agreement is over.
That asymmetry is what makes «gaps usually fill» an unreliable foundation even when the observation is true. A pattern of many small wins against occasional large losses is a shape, not an edge, and the frequency alone does not tell you which one you are holding. This site publishes no percentage here on purpose: a number would make the claim sound settled, and the thing that decides it is not frequency.
What to actually note in the morning
- How far today opened from yesterday's close, in points — and how that compares with a normal day's range for this instrument.
- Where the night traded: one-sided, or back and forth.
- Where yesterday's agreement was, so you know what the market would be returning to if it comes back.
- Whether anything caused it — a release, a result after the close — which is the subject of the next two articles.
Four observations, all about what has already happened, all available before the open. That is what preparation is, and the last article in this stage puts them together.