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Gap Fill Strategy
Trade the tendency of overnight gaps to fill
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What Is This Strategy?
Gaps occur when a stock opens significantly higher or lower than the previous close. Many gaps "fill" - meaning price returns to the previous close level. This strategy trades that tendency.
How It Works
- Identify stocks that gap up or down at market open
- If gap up = potential short (betting on gap fill)
- If gap down = potential buy (betting on gap fill)
- Set target at previous day close (the gap fill)
- Set stop-loss beyond the opening price
Key Parameters
Min Gap Size
Minimum gap to trade
Max Gap Size
Maximum gap (avoid news gaps)
Volume Filter
Avoid abnormal volume gaps
When to Use
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Best For
- • Small to medium gaps
- • No major news catalyst
- • High probability fill patterns
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Avoid When
- • Earnings gaps
- • News-driven gaps
- • Very large gaps (>5%)
- • Continuation gaps in trends
Risks & Limitations
warning
Be Aware
- • Not all gaps fill - some become "runaway gaps"
- • Fading strong momentum can be dangerous
- • News gaps may not fill for days or never
Example Trade
Scenario
DIS gaps down 2% on no significant news, opening at $98 vs $100 close.
BUY
Reasoning
No fundamental reason for the gap. High probability of filling back to $100.
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