Gaps occur when a stock opens significantly higher or lower than its previous close, leaving an empty space on the chart. On NSE, gaps are common after earnings results, economic data releases, geopolitical news, and global market moves overnight. Each type of gap has a different meaning and trading implication.
Four Gap Types Diagram
The Four Gap Types Explained
| Gap Type | Where it Forms | Gets Filled? | Trading Signal |
|---|---|---|---|
| Common Gap | In the middle of a range — no particular location | Usually within days | No signal — ignore or fade it |
| Breakaway Gap | Breaks out of a consolidation / resistance level | Rarely — gap is support | Strong continuation — trade in gap direction |
| Runaway Gap | Middle of an established trend | Eventually | Trend acceleration — stay in the trend |
| Exhaustion Gap | End of a trend — final price thrust | Quickly (within 1–5 days) | Reversal signal — prepare to exit or reverse |
Identifying Exhaustion vs Runaway Gap
The hardest part is distinguishing between a Runaway Gap (continue the trend) and an Exhaustion Gap (reverse). Key signals:
Exhaustion Gap signals:
— Very high volume on the gap day (panic buying/selling at the extreme)
— RSI above 80 or below 20 when the gap occurs
— Price immediately reverses and closes the gap within 1–3 sessions
— The gap occurs after a very extended trend (5+ weeks of strong moves)
— Very high volume on the gap day (panic buying/selling at the extreme)
— RSI above 80 or below 20 when the gap occurs
— Price immediately reverses and closes the gap within 1–3 sessions
— The gap occurs after a very extended trend (5+ weeks of strong moves)
NSE Gap Trading Rules
- Earnings gap-up on high volume → Breakaway Gap → Buy the pullback to the gap top
- Gap-up that immediately reverses on same day → Exhaustion → Exit longs
- Gap-up in the middle of a rally → Runaway → Trailing stop, don't exit yet
- Small gap with no news → Common gap → Wait for fill, no trade
On NSE, the gap area often becomes support on a pullback after a Breakaway Gap. If NIFTY 50 gaps up through 24,000 resistance and holds above it for 2–3 sessions, a pullback to 24,000 is a high-probability buy zone — the former resistance is now support.