Gap Trading Strategy - Journal Guide
Gap trading exploits price gaps between previous close and market open, trading either gap fills (reversals) or gap continuations for quick profits.
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Stocks
Intraday
Intermediate
Entry & Exit Rules
Entry Rules
- For gap fills: gap of 2-5% with no major catalyst
- For gap-and-go: gap with strong catalyst and high pre-market volume
- Wait for the first 5-minute candle to confirm direction
- Volume in first 5 minutes must exceed 2x average
Exit Rules
- Gap fill target: previous day's closing price
- Gap-and-go target: pre-market high (long) or low (short)
- Stop-loss at opening range low (long) or high (short)
- Time stop: exit if trade doesn't work within 60 minutes
Key Metrics to Track
What to Record
Risk Management
Risk 0.5-1% per gap trade as these are fast-moving setups. Gaps with catalysts (earnings, FDA approvals) are more likely to continue. Gaps without catalysts are more likely to fill. Size down during earnings season when gaps are more volatile.
Common Mistakes
What Is Gap Trading?
A gap occurs when a stock opens at a significantly different price from its previous close. This can happen due to overnight news, earnings reports, or simply supply-demand imbalances in pre-market trading.
Gap traders exploit these openings in two ways: gap fills (betting the gap will close) and gap-and-go (betting the gap will continue in the same direction).
Types of Gaps
Understanding gap types dramatically improves your win rate:
Common Gaps
These occur without a significant catalyst and fill most of the time. They represent random overnight noise and are your highest-probability fade opportunity.
Breakaway Gaps
These accompany a major catalyst (earnings beat, acquisition, FDA approval) and often mark the beginning of a new trend. These are your gap-and-go opportunities.
Exhaustion Gaps
These occur after an extended move and signal the trend is ending. They often fill quickly. Journal whether the gap occurred at a high/low extreme to identify these.
Journaling Gap Trades
Gap trading produces clear, quantifiable data that journals capture perfectly:
- Gap size in percentage and dollars
- Catalyst or lack thereof
- Pre-market volume relative to average
- First candle direction (continuation or reversal)
- Outcome with exact fill time if applicable
This data lets you build a statistical model of which gaps are worth trading and which to skip.
Building Your Gap Trading Playbook
After logging 50+ gap trades, you should be able to answer:
- What gap size range produces the best risk-adjusted returns?
- Do gaps in your stocks fill more or less often than average?
- What pre-market volume level predicts gap continuation?
- Does the day of the week affect gap fill rates?
These answers become your personal edge, visible only through consistent journaling.
How JournalPlus Helps
Strategy Tagging
Tag every trade with this strategy and track win rate, expectancy, and P&L by strategy over time.
Rule Compliance
Log whether you followed entry and exit rules. Spot when rule-breaking costs you money.
Performance Analytics
See which market conditions produce the best results for this strategy with automatic breakdowns.
Mistake Detection
AI flags pattern-breaking trades so you can stay disciplined and refine your edge.
What Traders Say
"Categorizing gaps by catalyst in my journal revealed that no-catalyst gaps fill 78% of the time. This became my highest win-rate setup."
Frequently Asked Questions
What percentage of gaps fill?
Studies show that approximately 70-80% of common gaps (without major catalysts) fill within the same trading day. However, breakaway gaps caused by significant catalysts fill much less frequently, around 30-40%.
Should I trade gap fills or gap continuations?
Both can be profitable. Gap fills are higher probability but smaller moves. Gap continuations (gap-and-go) are lower probability but can produce larger gains. Your journal will reveal which works better for your style.
What is the best time to enter a gap trade?
Wait at least 5 minutes after the open. The first few minutes have extreme volatility and wide spreads. Let the opening range establish itself, then trade the breakout of that range.
Start Tracking Your Trades
Journal every trade, track your strategy performance, and find your edge with JournalPlus.
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