Patterns › Gap up vs Gap down
Look-alikes
Gap up vs Gap down
They look alike, so beginners mix them up. Here is what each one means, and how often each one worked on real charts.
Gap up
Price opened above the previous candle's high. It jumped up between the two candles.
A gap up happens when a candle opens above the high of the candle before it, so price skips every level in between. Most gaps appear after the market was closed, overnight, over a weekend or at a midday pause, while news and orders piled up. In our library a gap up counts when the open is at least half an ATR, the average size of the last 14 candles, above the previous high. A gap shows strong buying at the open, but price may later fall back to the previous high, which traders call filling the gap.
Calling any higher open a gap up, even when the new candle opens inside the previous candle's range.
Gap down
Price opened below the previous candle's low. It jumped down between the two candles.
A gap down happens when a candle opens below the low of the candle before it, so price skips every level in between. Most gaps appear after the market was closed, overnight, over a weekend or at a midday pause, while news and orders piled up. In our library a gap down counts when the open is at least half an ATR, the average size of the last 14 candles, below the previous low. A gap down shows heavy selling at the open, but price may later climb back to the previous low, which traders call filling the gap.
Calling any lower open a gap down, even when the new candle opens inside the previous candle's range.
Real odds side by side
Counted by the Trading Class research engine on real past candles: entry at the signal candle's close, target 1.5 × ATR(14), stop 1 × ATR(14), 12 candles to decide, a candle that touches both counts as the stop. How we count. Past data, not a forecast and not advice.