Stock Market Question (1 Viewer)

[Anthony Moore]

What does the term "filling the gap" mean?

Say someone is holding a stock at $2, and someone else says, "dont buy it, there are gaps to be filled at 1.6"

What does that mean?
Anyone enlighten me?

 

[BrianW]

This means that the stock closed sometime in the pase at 1.6, and opened the next day at a significantly higher number. (Let's say it's 3.0.) This creates a gap (of 1.4) in an otherwise smooth price flow. If you graph it, it will look like a cliff.

Many investors worry that when there's a significant gap like this, and that the stock hasn't actually traded hands for any of the prices within the gap, that the stock is eventually bound to trade hands at those prices in the gap before resuming its "normal course." This is called "closing the gap." So even though the stock has dropped from 3.0 to 2.0 (let's say), these investors would not touch it until the gap is completely closed by the stock trading at 1.6 once again. Once this gap is filled, these traders consider the stock safe (or safer) to buy.

Whether there is anything to this is, unfortunately, for you alone to decide.