3.15What is a gap-down opening?
1What is it?
A gap-down happens when a stock opens well below its previous close.
2Why does it exist?
It follows negative news overnight: poor results, a downgrade, regulatory action, a global sell-off.
3Diagram
4Risks
- A stop-loss order may fill far below your stop price on a gap-down day. This is called slippage.
5Quick revision
- Gap-down = open far below previous close.
- Caused by overnight bad news.
- Stop-losses can slip on gaps.
6Knowledge check
Q1. Previous close ₹500, open ₹470. Gap %?Show answer
−6%.
Q2. Why can a stop-loss at ₹490 fill at ₹470?Show answer
The stock gapped below the stop; the first available price was ₹470.
Q3. Name a cause of gap-downs.Show answer
Bad results, downgrades, regulatory news, global sell-offs.