A Weekend Gap refers to a price gap that occurs between the closing price on Friday and the opening price on Monday in financial markets. This phenomenon happens because most markets close over the weekend, and during this period, new information or events can emerge that significantly influence market sentiment. When trading resumes on Monday, the opening price may differ substantially from the previous Friday’s closing price, creating what traders call a “gap.”

In practical terms, a Weekend Gap can be observed in various markets, including stocks, indices, forex, and CFDs. Since the market is closed during the weekend, any economic data releases, geopolitical developments, corporate news, or other impactful events can occur without the ability for prices to adjust immediately. As a result, when the market reopens, prices “jump” to a new level, reflecting the accumulated information.

The size of the Weekend Gap is calculated as the difference between the Monday opening price and the Friday closing price:

Formula: Weekend Gap = Monday Open Price – Friday Close Price

If the Monday open is higher than the Friday close, this is called an upward gap or gap up. Conversely, if the Monday open is lower, it’s known as a downward gap or gap down.

For example, consider the stock of a major technology company like Apple Inc. Suppose Apple closes at $150 on a Friday. Over the weekend, the company announces better-than-expected earnings and a new product launch, causing positive investor sentiment. On Monday, the stock opens at $158, creating an $8 upward Weekend Gap. Traders who had short positions might face immediate losses, while those anticipating a gap up could capitalize on this movement.

Weekend Gaps are particularly relevant in forex and CFD markets, where trading is continuous during weekdays but pauses over the weekend. While forex markets technically close on Friday evening and reopen Sunday evening (depending on the timezone), significant news during the weekend can cause currency pairs to open at different levels than their Friday close, resulting in gaps.

Common misconceptions about Weekend Gaps include the belief that all gaps will “fill” quickly. “Filling the gap” means the price moves back to the level before the gap occurred. While many gaps do fill eventually, this is not guaranteed. Some gaps, especially those driven by fundamental changes, can mark the beginning of a new trend rather than a temporary anomaly. Traders should avoid assuming that a gap will always be corrected in the short term and must use other analysis tools to determine the likely price action.

Another common mistake is to treat Weekend Gaps the same as intraday gaps. Weekend Gaps are often larger and more unpredictable because the market has been closed for an extended period, and the price adjustment reflects accumulated news, not just a sudden event during trading hours. This means volatility can be higher at the open on Monday, and stop-loss orders placed near Friday’s close might be triggered unexpectedly.

Traders often ask related questions such as “How to trade Weekend Gaps?” or “Are Weekend Gaps profitable?” and “What causes Weekend Gaps in forex?” The answer depends on individual trading strategies and risk tolerance. Some traders use Weekend Gaps as an opportunity to enter trades based on expected continuation or reversal patterns, while others avoid trading immediately at the open due to increased volatility and uncertainty.

In summary, Weekend Gaps are price gaps that occur between the Friday close and Monday open, reflecting market adjustments to news and events during the market closure. Understanding these gaps and their implications can help traders manage risk and identify potential trading opportunities. However, it is essential to treat Weekend Gaps with caution, avoid assumptions about immediate gap fills, and combine gap analysis with broader market context.