What is a Gap Fill in Stocks and How To Trade Them?

A “gap fill” is when price retraces back to the level of the price gap, effectively “filling” the space on the price chart. Some traders believe that unfilled gaps act as areas of support and resistance and expect the price to revisit those levels in the future. When the price eventually returns to fill the gap, it is considered a gap fill.

In the next section, we look at more ways in which traders can use gaps to create a trading strategy. Firstly, it could be that the trading gap was created out of either irrational exuberance or pessimism towards the share. If that’s the case, traders and analysts will soon figure out the truth and return to the earlier position. Exhaustion gaps also tend to get filled very quickly due to profit-taking (in an uptrend) or panic selling (in the opposite direction). Most do not offer many opportunities for traders to take positions or generate profits. An example of changes in technical parameters could be a stock that breaches its support or resistance band in the last session of the day’s trade.

  1. On the other hand, traders can also look for stocks that have gapped up in price but are overvalued and likely to fall back down.
  2. Yahoo starts with a 3.03% bullish gap, followed by a hanging man reversal candle.
  3. If price moves inside the gap area but does not move all the way through it, that is called a partial gap fill.
  4. The size of the algorithmic order may be such that it triggers a price gap, breaking above the recent high and drawing in other traders to the directional movement.

This article looks at gap trading strategies in the stock market. We provide you with some backtested examples of how to trade gap fills, but unfortunately, the low-hanging fruit has been “arbed” away. Gap trading is not nearly as profitable as it used to be, both in individual stocks and stock indices.

Level 1 vs. Level 2 Market Data

After reading the article, you might wonder if there is any way you can find out before a stock or asset gaps up. The average gain per trade is 0.48 and the profit factor is 1.8. Not a spectacular strategy, but works reasonably well, most likely because of the extra risk premium of the gap down opening.

All information on Ticker Table is provided for informational purposes only and is not intended as financial advice. Readers are encouraged to do their own due diligence on any of the stocks listed. Successful traders have utilized these strategies and reaped significant rewards. This presents an opportunity for savvy investors to buy low and sell high.

There are many ways to take advantage of these gaps, with a few strategies more popular than others. Some traders will buy when fundamental or technical factors favor a gap on the next trading day. Traders might also buy or sell into highly liquid https://broker-review.org/ or illiquid positions at the beginning of a price movement, hoping for a good fill and a continued trend. For example, they may buy a stock when it is gapping up very quickly on low liquidity and there is no significant resistance overhead.

A gap is a large change in the value of a financial instrument with no major buying or selling activity in between. Morning Gap A picture is worth a thousand words and nothing will wake you up quite like a morning gap! The gap has the amazing ability to take the breath right out of swing traders and long-term… In the chart below, notice how the stock fills the gap within 10 minutes of the open. Not only does it fill the gap quickly, but look at the size and volume of the candle. It took all day, but BAC finally hits our target in the $15.30 area which gave us a profit per share of 77 cents.

Gap Fill Trading Strategies

Gaps occur on price charts for various reasons such as significant news announcements, earnings reports, changes in market sentiment, and external market events like geopolitical turmoil. Understanding the reasons behind the gaps is essential for trading strategies based on gap fills. For instance, if a gap up is due to a strong earnings report, the chances of the gap being filled may be lower than if the gap were caused by a less significant event. Identifying the support and resistance levels is one of the most important concepts in technical analysis when considering gap fills. Support represents the lower end of a price pattern, whereas resistance denotes the upper end of the pattern. It’s crucial to keep in mind that this strategy doesn’t always work, as price gaps can sometimes persist due to market forces or news events.

Gaps can occur due to various reasons, such as significant news or events, changes in market sentiment, or changes in the underlying fundamentals of the asset. Gaps can also occur due to technical factors such as stop-loss orders or margin calls. A gap is a technical analysis term used to describe a price movement where a financial instrument’s price opens higher or lower than its previous closing price. Trading gaps occur when there is a significant change in the supply or demand for an asset, and this results in a sudden jump in price. When trading with common gaps and gap fills, risk management considerations are essential for maximizing profits and minimizing losses.

The downside is that you trade twice almost everday and it doesn’t work very well for any other ETFs except for QQQ. The win rate is pretty good, but the average is below other Fridays. The data is adjusted for dividends and collected from Yahoo! and IQFeed.

Opening Bell – 2 Simple Trading Strategies

As you can see on the chart, it is possible to use gap fill stocks strategies in multiple time frames. This chart intervall is mainly used by swing traders, but the intraday charts work similarly. The gap and go strategy is used by traders who speculate on further momentum in the direction of a trend. This strategy involves scanning for stocks showing an increase in price compared to the closing price of the prior day during the pre-market. Gaps mostly occur on daily charts and only seldom during intraday time frames. Still, a minimal gap is always possible if the last and previous print prices differ.

What is an opening gap? (Gap Fill)

Gap fill refers to a price movement where the price of a financial instrument moves back to the level it was at before the gap occurred. In other words, gap fill is when the price “fills in” the gap by retracing back to its previous level. Quadruple witching is a market day when single stock options, stock index options, single stock futures, and stock index futures all expire. Quadruple witching days typically see above-average trading volume, although this volume isn’t necessarily accompanied by… As prices move up and down, they will often find support or resistance levels that prevent them from continuing to move in those directions.

Gaps are a significant technical development in price action and chart analysis. Japanese candlestick analysis is filled with patterns that rely on gaps to fulfill their objectives. Gaps typically occur when a piece of news or an event causes a flood of buyers or sellers into the security.

The above are the three most used labels for gaps, but there are, of course, many others. Only your imagination prevents you from finding and labeling gaps. It’s important to note that not all gaps fill, and some may take a longer time to fill than others. Check out Market Rebellion’s Rebel Hub for the biggest stories on market-moving events, how-to trading guides, and the latest in Unusual Option Activity from Jon and Pete Najarian.

Fill rate of gaps in the S&P 500: facts

As a result, caution and thorough analysis should be employed when attempting to capitalize on such situations. Gap fill stocks refer to stocks that have experienced a gap and then have subsequently filled city index review that gap. To find gap fill stocks, you can use technical analysis tools that identify gaps in the price chart of a stock. Once you have identified a gap, you can track the stock to see if it fills the gap.

Monitoring Trading Volume and Liquidity

Gaps typically happen in response to news or other events and usually after market hours when there isn’t a chance for the stock price to rebound due to lower trading volumes. For example, a positive earnings report after market close could cause the price of a stock to gap up. By examining factors such as news events, analyst opinions, and broader market trends, traders can gain insights into the overall sentiment surrounding a security. Armed with this information, investors can identify gap trading opportunities with higher probabilities of success. By developing effective trading strategies based on their analysis skills and risk tolerance levels, traders can potentially profit from gap fill stocks while minimizing their risks.