Stocks and indices that gap up significantly on the open often fade back toward the prior close as early-morning euphoria fades. Short the gap-up after confirming rejection in the first 15-30 minutes.
Indicators Used
VWAPVolumePrior Day Close
Rules
📉 Short Gap Fade
- Opening gap up of at least 1% (or 0.5% for indices)
- No major positive news justifying the gap (earnings, M&A, etc.)
- First 15 minutes: price fails to make new highs
- Price closes below VWAP within the first 30 minutes
- Enter short on the VWAP rejection close
- Stop: above the morning high
- Target: prior day close (the gap fill level)
🚫 Skip Setup
- Gap is from material positive news (strong earnings beat, etc.)
- Pre-market strongly supports the gap direction (follow-through likely)
- Market broad indices gapping up strongly (trend day risk)
≥1%
Gap Size
Prior Close
Target
💡 Pro Tip
Gap fades work best on 'news-less gaps' (just pre-market order imbalance) and fail on gaps driven by genuine catalysts. Check the catalyst quality before shorting. Gap-and-go risk is real on strong news.