Why Stock Charts Show Gaps Between Consecutive Sessions

Summary

A stock’s closing price and the next session’s opening price can differ because the market reprices the stock between those observations. Overnight news is a common cause, and trading outside regular hours can also contribute. The chart records prices at which trades occurred; it does not apply a routine adjustment to reconcile the close with the next open.

The explanation also notes that price changes happen during the trading day. They may appear less conspicuous on a chart because connecting lines make intraday movement look continuous. The answer is conceptual and does not quantify how much overnight news or after-hours trading contributes to a particular gap. It also does not cover chart conventions such as adjusted prices for dividends or splits, which are separate from the ordinary difference between two observed trade prices.

Key ideas

• A session’s closing trade and the next session’s opening trade can occur at different prices.
• Overnight news can lead market participants to agree on a new price before the next open.
• After-hours trading may also contribute to the difference between consecutive sessions.
• Charts connect discrete trade prices, which can make intraday discontinuities less visually obvious.

Tags

# What causes discontinuities with stock prices


# What causes discontinuities with stock prices












With reference to the figure above, why is it that the price at which the stock closed at on monday not equal to the open price on tuesday?

Is this discontinuity due to an adjustment in the price to make up for pre/post market volume? If not then why does this occur?

## Answer by Steinwolfe (score 2, accepted)

https://quant.stackexchange.com/a/25319

Typically due to news overnight, and sometimes, as you suggest, after hours trading. The stock prices you see in the chart are the prices at which trades occurred. Trades are discrete events, at discrete prices. The discontinuities you see in the chart are simply due to the market agreeing a different price on the following day. Those discontinuities occur intraday too, however, they are not as visible simply due to the way the chart is drawn - with connecting lines between the prices.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.