Nifty Gap Analysis

What is a Gap?

A gap is a change in price levels between the close and open of two consecutive days. A Full Gap Up occurs when the opening price is greater than yesterday’s high price. And a Full Gap Down occurs when the opening price is less than yesterday’s low.

Four type of Gaps example (Chart pattern)
Four type of Gaps example (Chart pattern) (Photo credit: Wikipedia)

Why should investors care?

Gaps indicate “event sensitivity” of the index. In the normal course of business, as information is absorbed by the market, the price reacts. However, if significant events occur outside of market trading hours, the information gets priced in through “gap” opens. And gaps can be traded.

Gap History

The number of gaps have gone up significantly since 2010. Here’s a chart of the number of full gaps (both up and down):

total full gaps

Zooming in, from 2010 onwards:

total gaps 2010-2013

On an average, down gaps have displayed higher magnitude, compared to up gaps:

avg gaps


gaps 2010-2013

Trading the gap

Not only do opening gaps occur daily and offer significant profit opportunity,but they have an inherent directional bias. The following links take you to some of the most common gap trading strategies:

Gap trading is an opportunity worth exploring.

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