Trade the market opening gaps that signal overnight conviction or overreaction.
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Overview
A price gap occurs when an asset opens significantly higher or lower than the previous close, leaving an empty zone on the chart where no trading took place. Gaps are among the most emotionally charged price events, representing overnight conviction (sentiment shifts, news, earnings) that materialises the moment markets reopen.
There are four types of gaps: Common gaps (routine, fill quickly, no trading significance), Breakaway gaps (occur at the start of a new trend, high volume, rarely fill), Runaway/Continuation gaps (occur mid-trend, confirm momentum), and Exhaustion gaps (occur at trend extremes on declining volume, quickly fill).
Gap fill strategies exploit the tendency of gaps to be "filled" β meaning price returns to the pre-gap level. Studies show that approximately 70% of gaps eventually fill, making fade strategies statistically sound. The trade: if price gaps up at open, short near the gap high and target the previous close. If it gaps down, buy near the gap low and target the fill.
Gap continuation strategies (particularly for breakaway and runaway gaps) take the opposite approach: buy the gap-up open after a valid breakout, holding for a continuation move. These gaps often mark the beginning or middle of strong trending moves and should not be faded.
Strategy Code
This is a TradingView Pine Script strategy example for this page concept. Paste it into the TradingView Pine Editor, add it to your chart, and run it in the Strategy Tester.
//@version=6
strategy("Gap Trading Strategy", overlay=true)
atrLen = input.int(14, "ATR Length")
atrMult = input.float(2.0, "ATR Mult")
emaLen = input.int(50, "Trend EMA")This is a thinkorswim ThinkScript strategy example for this page concept. Open thinkorswim, create a custom strategy, paste the script, and apply it to your chart.
input atrLength = 14;
input emaLength = 50;
def atrVal = ATR(atrLength);
def emaVal = ExpAverage(close, emaLength);
def buySignal = close crosses above emaVal;Join thousands of traders who use auto-Trading to execute this strategy automatically, 24/7.
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