Gap Trading Strategy: How to Trade Morning Gaps

A gap occurs when a stock or futures contract opens at a significantly different price than yesterday’s close, creating a visible “gap” on the chart. Gap trading strategies exploit these price jumps by either fading the gap (betting it will fill) or trading in the gap direction (betting momentum continues). Most gaps happen at the morning open due to overnight news, earnings, or pre-market activity.

Types of Gaps

Not all gaps are equal. Understanding the type helps you decide how to trade it:

• Common gaps: Small, routine gaps caused by normal overnight activity. These fill frequently (price returns to the previous close) and are the easiest to trade.
• Breakaway gaps: Large gaps that launch a new trend, often on earnings or major news. These rarely fill in the short term and signal a significant shift.
• Continuation gaps: Gaps that occur within an existing trend, confirming momentum. They happen mid-trend and show that the move has more room.
• Exhaustion gaps: Gaps that occur near the end of a trend, often on high volume. These fill quickly and signal a reversal.

Roughly 70% of gaps eventually fill, but the timing varies enormously. A common gap might fill within hours; a breakaway gap might take weeks or never fill.

Gap Fill Strategy (Fading the Gap)

The most popular approach for beginners is the gap fill, or “fade.” When a stock gaps up or down on moderate volume without a major catalyst, you trade against the gap, expecting price to return to the previous close.

Rules for gap fills:

• Gap size should be less than 3% (larger gaps on news are less likely to fill quickly)
• No major catalyst (earnings, FDA, etc.) driving the gap
• Wait 15-30 minutes after the open for initial volatility to settle
• Enter when price shows a reversal candle in the fill direction
• Target: the previous day’s close (the “fill” level)
• Stop loss: beyond the gap extreme (the open or the first candle’s high/low)

Gap and Go Strategy

When a gap has a strong catalyst and massive volume, do not fade it. Trade with the gap instead. This is the “gap and go” strategy.

Rules for gap and go:

• Gap is driven by a clear catalyst (earnings beat, major news)
• Pre-market volume is 3x or more than average
• Price holds above the opening price (for gap ups) in the first few minutes
• Enter on the first pullback after the open that holds above the gap level
• Use a trailing stop or scale out as price extends

The first 30 minutes after the open are critical for gap trading. Most of the directional information about whether a gap will fill or continue is revealed in this window. Check our guide on trading the first 30 minutes for more detail.

Key Takeaways

• Gaps are price jumps between yesterday’s close and today’s open
• Common gaps without catalysts tend to fill; breakaway gaps on news often do not
• The gap fill (fade) strategy works best on small, catalyst-free gaps
• Gap and go trades the gap direction on high-volume, catalyst-driven gaps
• Wait 15-30 minutes after the open before entering to let volatility settle

Frequently Asked Questions

What percentage of gaps fill? Roughly 70% of gaps eventually fill, but timing varies. Small common gaps on stocks may fill within hours. Breakaway gaps on major news might take weeks or never fill completely.

Can I gap trade futures? Yes, but futures gaps are smaller because they trade nearly 23 hours per day. The most common futures gaps happen over weekends (Sunday open vs. Friday close). E-mini S&P 500 gap fills on Sunday evenings are a popular strategy.

What is the best scanner for finding gap stocks? Most brokers offer pre-market gap scanners. Tools like Trade Ideas, Finviz, and TradingView screeners can filter for stocks gapping up or down by percentage with above-average volume.

Risk Disclaimer: Trading involves substantial risk of loss. Past performance is not indicative of future results. See our full risk disclaimer.