Gap Fill
Definition
A gap fill occurs when price retraces to close the open space left by a gap — returning to the level where the gap originated — and is one of the most reliable statistical tendencies in markets, with studies consistently showing that the majority of gaps eventually fill over varying timeframes.
Example
“The stock gapped from $22 to $26 on earnings. Five days later, during a sector selloff, it retraced all the way back to $22.10 before bouncing. The gap filled exactly. Traders who knew the $22 level was a gap origin had a clean long entry with a tight stop.”
Detailed Explanation
Gap fills happen because the price level where the gap started often represents significant supply or demand that wasn't fully resolved when price skipped over it. In a gap-up, buyers rushed in immediately and price jumped — but the sellers who would normally have transacted at intermediate prices never got their fill. Those unfilled orders create a "gravity" that pulls price back to the gap origin over time. The gap fill level often acts as strong support (in gap-up fills) or resistance (in gap-down fills) once price returns to it, because that's where the supply and demand story of the original move began.
The timeframe for gap fills varies enormously. Common gaps (no catalyst, small size) fill within hours or a day or two. Earnings gaps in strong trends may take weeks, months, or never fill if the fundamental change is sustained. The general statistical observation is that roughly 70-80% of gaps eventually fill over a one-year horizon, but that's too wide a timeframe to be useful for day trading. For intraday trading, the more relevant question is: does this gap look like it will fill today? Clues: a gap-up stock that immediately fails to hold above VWAP at the open suggests gap-fill potential; one that holds VWAP and builds higher lows does not.
Gap fill targets are useful in trade planning because they're specific, measurable levels derived from the chart itself. If you're short a stock that gapped up on bad earnings, the prior close (the gap origin) is a natural target for your short. If you're long a stock that sold off hard and then bounced, the prior close is a natural target for your long. Using gap fill levels as profit targets gives your exits a technical basis rather than an arbitrary number, which tends to produce better risk-reward characteristics than targets placed at round numbers or percentage gains from entry.