Gap Trading Strategies

Gap Trading Strategies exploit the price discontinuities that occur between session closes and opens, typically in stocks and equity index futures where overnight news, earnings, and international market moves produce opening prices different from prior closes. Gaps fall into four categories: common gaps (small, within recent range, typically fill same-day), breakaway gaps (from consolidation into new trend territory, typically hold), exhaustion gaps (at the end of extended moves, typically fill), and runaway gaps (mid-trend continuation, mixed behavior).

The strategies here trade three distinct gap behaviors. Gap Fill plays the statistical tendency of small-to-medium gaps to revert to the prior close within one to three sessions. The classic gap-fade. Gap-and-Go trades breakaway gaps on high-momentum days when the gap marks a regime shift, entering in the gap's direction with tight stops below the pre-market low for longs. Breakaway Gap Follow extends this into swing timeframes. Gap-Up Fade specifically trades the exhaustion variant where opening euphoria produces a gap that fades throughout the session. The critical filter is gap size relative to Average True Range: gaps under 0.5× ATR are noise, gaps over 3× ATR are binary events requiring fundamental context. Most gap strategies perform best in the 1–2× ATR range where technical behavior dominates fundamental drivers.