As most traders know, a Gap is an area discontinuity in the price of a security where it either rises or falls from the previous day's closing price without any trading activity occurring between the two points. A gap can be caused by several things, including news that affects market fundamentals during hours when markets are typically closed (for instance an earnings call after-hours).A gap is a visual representation of this news causing change in equity prices. It shows the price of a stock rising or falling discontinuously with no trading occurring in between, for instance when a company announces that it will miss earnings expectations.Take for instance two companies, ABC Corp. and XYZ Inc. during 10:00 AM Monday morning. Both companies announced positive earnings results, which is a common occurrence in their industry. With just this news alone, both share prices will likely rise as investors look to profit from the uptick in optimism regarding both stocks. However, with only one hour of trading occurring at 9:30 AM EST (10:30 AM CST) on Monday morning, the market closes at 3:15 PM EST (4:15 PM CST). This leaves a sizable gap in which the prices of ABC Corp. and XYZ Inc. will trade without any real movement until Thursday afternoon when the market reopens its doors at 11:30 AM EST (12:30 PM CST).
