Gap Trading Strategies
A Comprehensive Guide to Gap Trading Setups
Gap 'n Go and Fading
The ‘gap and go’ strategy targets runaway or breakaway gaps for potential significant price movements. Triggers for these trades can include opening range breakouts, prior candle breaks, trendline breaks, or high breaks.
Fading is another strategy used to trade against the direction of the gap. However, common mistakes while trading gaps include not considering the opening print, ignoring price action clues, and not having a clear roadmap.
Gap Fills
Two specific strategies related to gap trading include the ‘gap fill’ and ‘gap fill fake. ‘Gap fill’ occurs when a common or exhaustion gap is expected to be filled, and trades are made in the opposite direction of the gap. On the other hand, ‘gap fill fake’ refers to when price action appears to be heading towards a gap fill, but then reverses, effectively trapping traders who anticipated a gap fill.
In either case, careful observation of the daily trend, volume, and overall market context is crucial. Effective use of tools such as TradingView’s gap screener can also aid in identifying potential gap trading opportunities.
Final Thoughts
Gap trading leverages the price difference between the opening price and the previous day’s close to identify trading opportunities. Proper gap identification, understanding of market context, and the use of gap screening tools are essential for the best trade execution.
This is the second and last part of the Gap Trading Series Webinar. Click here to go back to Part 1.
Gap Trading Engine for Tradingview
Test different gap fill strategies and variables with this custom Trading View strategy code.
