When a gap is filled, it means the price has returned to the original level before the gap happened. This usually means the price of the asset, in the following days or weeks, retraces to the last price before the gap occurred.
As breakaway and continuation gaps confirm a trend direction, it is less likely for gaps to be filled in these scenarios. Conversely, exhaustion gaps have a higher probability of being filled as they usually indicate that a price trend is coming to an end.
If traders believe that a gap will eventually be filled, they may implement a strategy called ‘fading’. This is when traders take a position in the opposite direction of the gap. For example, if there is a downward gap, traders will take a long position believing that the price will return to its pre-gap price. The time taken for a gap to be filled may take hours, days, weeks or even months.
