Types of gaps: what actually breaks the price and why a gap does not always fill

A gap is a stretch of the chart where no trades took place: the session opened above or below the previous session's close. Gaps differ not in how they look on the screen, which is always the same, but in what caused the break and in what happens to the stock afterwards. The classification has one practical purpose. The cause of a gap tells you whether there is new information behind it that the market has not yet worked into its orders, or whether it is merely a technical jump caused by a thin order book.

The mechanics: why the price jumps at all

Continuous trading produces a continuous chart only as long as the order book holds orders at every nearby price level. A gap appears wherever trading was interrupted: between the evening close and the morning opening auction, between Friday and Monday, around discrete auctions and trading halts. Information arrives during that time, and the opening auction matches the accumulated orders straight away at a new equilibrium price. The intermediate levels simply never trade.

This leads to a point that matters more than any classification: a gap is not a "level" but the absence of levels. Inside the gap there is no volume, no executed orders and no market memory of trades. Every argument about a gap acting as a "magnet" rests on the fact that orders left unfilled before the gap often stay in the book after it, not on some property of the empty space itself.

The dividend gap: the only one known in advance

A dividend gap appears after the record date: the stock opens lower because the right to the payout has already been detached from it. It is the most predictable type of gap. Both the date and a rough guide to its depth are known, because it is tied to the announced size of the payout. Dates for Russian stocks are collected in the dividend calendar, while payout terms and history are in the dividends section.

Upcoming payouts:

What you should not expect here is that the gap will mechanically equal the payout. The dividend reaches your account later and already net of tax, while the opening price also reflects the general market backdrop and the positions of those who bought the stock only for the cut-off and sell straight after it. That is why the gap can be either deeper or shallower than the payout.

News gaps and earnings gaps

Corporate events — the release of results, a change in dividend policy, deals, regulatory decisions — produce gaps backed by new information. Such a gap is more likely to continue in its own direction: the market is repricing the stock rather than reacting to noise. The trigger is easy to track through financial disclosures and the corporate events calendar; the broader market backdrop is covered in the news feed.

Gaps driven by the external backdrop stand apart. They occur at the open after a weekend, when foreign exchanges and commodity markets have already priced in an event and the Russian session is only just starting. Here the gap reflects not news about a particular issuer but a repricing of the whole market, and a broad range of stocks moves in the same direction, as the list of stocks shows.

Classification by position in the trend

Trading tradition divides gaps according to where in the move they occurred.

• Breakaway gap — on the exit from a consolidation, accompanied by rising volume. The gap marks a shift in the balance: a range that held for a long time is broken in one go.
• Runaway (continuation) gap — within a trend already under way, with no new trigger, driven by an imbalance of orders. Usually the one with the shortest-lived consequences.
• Exhaustion gap — at the end of a prolonged move, often at a peak of emotion and volume, after which the price reverses. It cannot be told apart from a breakaway gap at the moment it appears; the distinction is made after the fact, from how the following sessions behave.
• Technical gap — in an illiquid stock or during the morning phase, when the order book is empty. There is no information behind it, and it fills faster than the others.

An honest caveat: the first three types can only be identified in hindsight. Any "gap trading" strategy is really trading a hypothesis about what kind of gap it is, not the fact of the gap itself.

"Filling the gap" — what it literally means

A gap is said to be filled when the price returns to the closing level of the session that preceded the break. Technical gaps and backdrop-driven gaps fill more often: no new information has emerged, and the earlier orders remain relevant. Earnings gaps and dividend gaps do not fill on any schedule. In the dividend case, the recovery depends on whether buyers return to the same valuation of the stock now that it no longer carries the right to the next payout. Neither the average time to fill nor the probability of a fill is a property of the stock: both change along with the market, and neither can be promised.

What to do about it in practice

Step 1 — establish the cause of the gap before assessing the gap itself: earnings, a dividend cut-off, the external backdrop or an empty order book. Step 2 — check the date against the events and dividend calendars so as not to mistake a scheduled dividend gap for a crash. Step 3 — assess liquidity: in stocks with a thin order book, gaps occur regularly and carry little information. Terminology on gaps, dividend cut-offs and the opening auction is explained in the glossary.