Gapping strategy is taking advantage of a time difference. An example is borrowing short to lend long because that gives a better interest rate return for the lender (in a normal market where short-term rates are lower than those in the longer term).This strategy gives the lender an overall better interest rate as short rates are generally lower than long rates. Also in technical analysis, gapping can refer to the use of a gap strategy which looks at stocks that display price gaps from previous closes.
A gap is a change in price levels between the close and open of two consecutive days. Although most technical analysis manuals define the four types of gap patterns as Common, Breakaway, Continuation and Exhaustion, those labels are applied after the chart pattern is established. That is, the difference between any one type of gap from another is only distinguishable after the stock continues up or down in some fashion. Although those classifications are useful for a longer-term understanding of how a particular stock or sector reacts, they offer little guidance for trading.
To employ a gap strategy an investor can scan the morning prices for a gap and watch to see what the stock does in the first couple hours of the trading day. In general, if the price goes up, it signals a buy, and if it goes down, a short. There are several variations of the gap strategy.