Gap Trading: Profiting from Market Gaps
Gaps in price action create consistent opportunities. Here's how to identify, classify, and trade gaps with a systematic approach.
Strategies · April 18, 2026 · 5 min read
A gap occurs when price opens significantly above or below the prior close, leaving a range of prices where no trading occurred. Gaps happen due to after-hours news, earnings releases, or overnight macro developments. They create distinct technical patterns with different directional implications depending on their type and context.
Gap Types and Implications
Common gap types: breakaway gaps (occur at the start of a new trend from a consolidation — typically not filled quickly and signal strong directional movement); continuation gaps (occur in the middle of an established trend — confirm the trend is intact); exhaustion gaps (occur at the end of a trend with extreme volume — often reversed within days); and common gaps (no structural context — typically fill relatively quickly). Identifying the type before trading is critical.
Gap Fill vs Gap Continuation
The common gap fill strategy — fading a gap in expectations that it will fill — works well for common gaps in established ranges. Gap continuation — trading in the gap direction — works better for breakaway and continuation gaps in trending instruments. The statistics on gap fills vary significantly by instrument: stock index gaps fill more often than individual stock gaps; crypto gaps rarely fill in the short term. Know your instrument's gap behavior before applying a strategy.
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