Gap Trading Strategies

Price gaps create unique trading opportunities. Understanding gap types and their behavior is essential for consistent profits.

What is a Price Gap?

A gap occurs when price opens significantly higher or lower than the previous close, creating a visible empty space on the chart.

Types of Gaps


Common Gaps

• Occur in normal trading ranges
• Low volume and significance
• Usually fill quickly (within 1-3 days)
• Do not indicate trend change

Breakaway Gaps

• Occur at the start of a new trend
• Break through support/resistance
• High volume confirmation
• Often do not fill for a long time

Runaway (Measuring) Gaps

• Occur in the middle of a trend
• Confirm strong momentum
• High volume continuation
• Used to measure trend targets

Exhaustion Gaps

• Occur at the end of a trend
• Final push before reversal
• Often fill within days
• Watch for reversal signals after

Gap Trading Strategies

Gap Fill Strategy

1. Identify a gap at market open
2. Determine if it is a common or exhaustion gap
3. If likely to fill: trade in the direction of the fill
4. Stop beyond the gap extreme
5. Target: complete gap fill

Breakaway Gap Strategy

1. Gap breaks through key support/resistance
2. Volume confirms institutional activity
3. Enter in the direction of the gap
4. Stop: below the gap for bullish, above for bearish
5. Let winners run - these often start big moves

Weekend Gap (Forex)

• Forex market closes Friday, opens Sunday
• Gaps are common on Sunday open
• 70%+ of weekend gaps fill within the week
• Trade the fill on Sunday/Monday

Gap Statistics

• Common gaps fill 90%+ of the time
• Breakaway gaps fill less than 50%
• Weekend forex gaps fill 70%+ within the same week
• Stock market morning gaps fill 60-70% by end of day

Risk Management

1. Always use stop losses with gap trades
2. Size positions smaller - gaps can be volatile
3. Wait for confirmation before entering
4. Be aware of news events causing gaps
5. Track your gap trade win rate

Key Takeaways

1. Not all gaps are equal - identify the type
2. Common and exhaustion gaps tend to fill
3. Breakaway gaps often signal new trends
4. Volume is the key differentiator
5. Weekend gaps in forex are tradeable opportunities