Chapter 5. Gaps and Previous Price Movement
For a gap to occur, obviously there must be price movement from one day to the next. A gap up occurs when today’s low is higher than yesterday’s high. So on a gap up there had been an upward jump in price at the open. But what happened during the day of the gap? Did the stock close higher or lower than the open? If the closing price is higher than the opening price, you would chart it on a candlestick chart with a white candle body. If the close is lower than the open, the candle body is shaded black. This chapter examines the significance of the candle color on the day of the gap, which is referred to as Day 0, and the candle color the day before the gap, which is referred to as Day –1.
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