Gap Fill

Not all gaps are created equal. The type of gap determines how likely it is to fill and how quickly:

Common gaps (fill rate: 85-95%): Occur within established trading ranges with no significant catalyst. These are simply the result of overnight order flow imbalance and fill quickly, often within the same trading day. They are the most reliable gap fill trades.

Breakaway gaps (fill rate: 20-40%): Occur when price breaks out of a consolidation pattern or trading range on significant volume. These gaps signal the start of a new trend and often do not fill for weeks or months. Trying to fade a breakaway gap is one of the most expensive mistakes in gap trading.

Runaway/continuation gaps (fill rate: 40-60%): Occur in the middle of an established trend, showing acceleration. They may eventually fill when the trend exhausts, but fading them prematurely can result in large losses as the trend continues.

Exhaustion gaps (fill rate: 80-90%): Occur near the end of a trend, often on extremely high volume. They represent the last burst of buying (or selling) before the move reverses. These fill quickly, usually within 1-3 days, and offer excellent risk/reward for gap fill trades.

How to distinguish gap types: Volume is the key differentiator. Breakaway gaps occur on significantly higher volume than average (2-3x+). Exhaustion gaps also show high volume but are accompanied by extreme technical extension (RSI above 80 or below 20, price far from moving averages). Common gaps occur on average or below-average volume with no significant news.

Gap fill long strategy (gap down fill): When a stock gaps down 3-8% on no significant news or on an overreaction to minor news: (1) Wait for the first 15-30 minutes to establish the opening range. (2) Enter long when price shows a reversal pattern (hammer candlestick, bullish engulfing) above the opening range low. (3) Set stop below the morning low. (4) Target the previous close (complete gap fill) or the halfway point (partial fill). Take partial profits at the halfway level.

Gap fill short strategy (gap up fill): When a stock gaps up 3-8% on no significant news: (1) Watch for the opening drive to exhaust (volume declining, candles getting smaller). (2) Enter short when price breaks below VWAP or the opening range low. (3) Stop above the morning high. (4) Target the previous close.

Key filters for gap fill trades:

• Gap size: 3-8% gaps have the highest fill probability. Gaps under 2% offer insufficient reward. Gaps above 10% often have significant catalysts and may not fill.
• Pre-market volume: Moderate pre-market volume (not extreme) supports gap fills. Extremely heavy pre-market volume suggests a breakaway gap.
• Catalyst check: No news = high fill probability. Earnings, FDA, M&A = low fill probability. Minor news (analyst upgrade/downgrade, sector rotation) = moderate fill probability.
• Technical context: Gaps into support or resistance have higher fill probability. A stock gapping up into a well-defined resistance zone is more likely to fill back down.

Overall gap fill statistics: Studies show approximately 70-80% of all stock gaps eventually fill. However, this statistic is misleading without the time dimension — a gap that fills in 6 months is useless for a day trader targeting same-day fills.

Same-day fill rates: For gaps of 2-5% on average-volume stocks, approximately 50-60% fill within the same trading session. For gaps of 5-10%, same-day fill drops to 30-40%. Gaps above 10% fill same-day only about 15-20% of the time.

Morning gap dynamics: Most gap fill action occurs in the first 2 hours of trading. After the first hour, if a gap has not started to fill, the probability of a same-day fill drops significantly. This is because the opening action establishes the day's sentiment — a gap up that holds for the first hour has buyers supporting the higher price.

Partial vs full fills: Many gaps partially fill (retrace 50-70% of the gap) before resuming the gap direction. Targeting partial fills (half the gap distance) significantly improves your win rate compared to targeting full fills. Use the 50% fill level as your primary target and trail a runner for the potential full fill.

Seasonality: Gap fill rates vary by market conditions. In trending markets, gaps in the trend direction fill less often (they are continuation gaps). In choppy, range-bound markets, gaps fill more frequently. Monday gaps tend to fill more often than gaps on other days because weekend overreactions reverse at the open.