Gap Trading
Overnight repricings — trade the continuation of strong gaps or the fill of weak ones, never both blindly.
Momentum & BreakoutAdvanced 7 min read· Lesson 6 of 9 in Trading Strategies
Overview
A gap is an auction restart: news repriced the stock while you slept. PRO gaps (earnings beats, above resistance, holding their open) tend to run — 'gap and go.' WEAK gaps (no news, into resistance, immediately sold) tend to fill. The first 30–60 minutes reveal which you have.
Market conditions
Gap-and-go thrives in trending tapes; gap-fill in ranging ones. GAP_UP / GAP_DOWN conditions scan for the raw events.
Entry rules
Continuation: break of the first 30-minute high after an up-gap that HELD its open. Fill: fade a newsless gap rejecting its open, targeting yesterday's close.
Exit rules
Continuation: trail under intraday structure. Fill: exit at the fill (yesterday's close) — the trade is done at the target by definition.
Stop loss
Continuation: below the opening range low. Fill: beyond the gap extreme.
Position sizing
Halve normal size — gaps mean elevated volatility and news risk (halts, second headlines).
Risk management
Never fade a large-cap's earnings gap 'because it's too big' — institutional repricing runs for days (post-earnings drift is a documented anomaly).
Evidence & backtesting
Gap statistics differ sharply by cause and context — daily-bar backtests miss intraday nuance here, so treat this one's platform backtests as approximations and study occurrences via the GAP_UP scan instead. Every strategy here maps to this platform's Backtest panel — the matching Strategy Preset fills entry/exit/stops in one click, and every result is benchmarked against buy-and-hold, which most simple strategies LOSE to on strong trenders. Seeing that honestly is the lesson.