Gap Trading: Types of Gaps and Fill Strategies
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A price gap occurs when a market opens significantly above or below the prior session's close, creating a visible empty space on the chart with no intervening trading. Gaps are rich with information: they show where supply-demand imbalances were strong enough to skip past intermediate prices entirely. Not all gaps are equal — the gap type, context and follow-through behavior determine whether the move continues or reverses. Understanding the four main gap types is essential for any trader working with stocks, indices, or weekend-gap forex.
Common Gaps and Breakaway Gaps
Common gaps are small, insignificant gaps that occur within trading ranges or tight consolidations. They have little technical significance and typically fill within a few bars — the market simply opens at a slightly different price due to low overnight volume. Breakaway gaps are different entirely: they occur when price gaps out of a well-defined range or consolidation pattern, usually on high volume. Breakaway gaps signal the start of a new trend. They typically do NOT fill quickly — in fact, prices continuing in the direction of the breakaway gap without filling is what makes them so powerful. Trading rule: fade common gaps (expect them to fill), ride breakaway gaps (expect continuation).
Runaway Gaps and Exhaustion Gaps
Runaway gaps (also called "measuring gaps") occur in the middle of an established trend, typically on accelerating volume. They indicate the trend is strengthening and halfway through its expected move — traders sometimes project the remaining trend distance by doubling the distance from trend start to runaway gap. Exhaustion gaps occur at the end of a strong trend, often on extreme volume and extreme price moves — they reflect climactic buying or selling as the last weak hands enter too late. Exhaustion gaps are frequently followed by reversals. Distinguishing runaway from exhaustion in real time is difficult; look at volume behavior and whether subsequent bars confirm the trend or show reversal candlesticks.
Gap Fill Probability
The adage "all gaps fill eventually" is a dangerous oversimplification. Historical studies on S&P 500 futures show: common gaps fill within 1 day about 70% of the time. Breakaway gaps fill within a month only about 20% of the time — many never fill. Runaway gaps fill within a month roughly 10–15% of the time in strong trends. Exhaustion gaps fill more quickly — around 60% within a month, often as the trend reverses back through them. Forex weekend gaps are a separate category and fill within the same week about 70–75% of the time on major pairs. The key takeaway: gap-fill probability depends entirely on gap type and context, not simple pattern recognition.
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Earnings and News Gaps
The most dramatic gaps occur after earnings announcements, Fed decisions, and major economic data. Stocks can gap 10–30% on earnings surprises; forex can gap 1–3% on surprise central bank actions; crypto can gap 20%+ on regulatory news (though crypto rarely "gaps" in the traditional sense due to 24/7 trading). Trading earnings gaps requires a specific playbook: (1) don't chase the gap immediately — first hour volatility usually reverses 30–40% of the gap. (2) Wait for the first 15–30 minutes to establish intraday range, then trade continuation or reversal based on how price behaves relative to that range. (3) Avoid holding gap trades into the next earnings announcement — gap reactions often unwind as new information emerges.
Practical Gap Trading Strategies
Three proven approaches. (1) Gap fade: on a small, unexpected gap (less than 1% on major indices), bet on gap fill. Enter the fade at the gap price, stop just beyond the opposite extreme of the gap, target the previous close. Win rate ~65% on intraday common gaps. (2) Gap and go: on a strong breakaway or runaway gap, buy/sell the first pullback to the gap boundary or the prior consolidation high/low. The gap often acts as new support/resistance. (3) Weekend gap plays: on forex, Sunday open gaps on major pairs frequently fill by Tuesday — buy gaps down, short gaps up, with tight stops. All three strategies work best with proper filters (gap size, volume, pre-gap structure) rather than blind execution.
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Frequently Asked Questions
Do all gaps eventually fill?
No — this is a common myth. Breakaway and runaway gaps in strong trends frequently do not fill for months or years, if ever. Only common gaps fill reliably (70%+ within days). The saying "gaps fill" came from equity traders watching common gaps on stable stocks. In live markets — especially trending ones — betting on every gap to fill is a fast way to lose money.
How big does a gap need to be to matter?
Context matters more than absolute size. On an equity index like S&P 500, a 0.5% gap is notable, 1%+ is significant, 2%+ is a major event. On individual stocks, 3%+ is significant. On forex weekend gaps, 20–30 pips is common; 50+ pips is notable. The key metric is the gap size relative to the instrument's average daily range — a gap larger than 50% of ADR is almost certainly driven by news and deserves attention.
Can you trade gaps on forex?
Forex trades 24/5 during the week so intraday gaps are rare. The main gap opportunities are weekend gaps — when the market closes Friday evening and reopens Sunday. Weekend gaps on major pairs (EUR/USD, GBP/USD, USD/JPY) fill within days about 70–75% of the time. Exotic and JPY cross gaps are less predictable. Also, news-driven gaps during the week can occur if major events happen during illiquid hours (Asian session open on a major central bank weekend announcement, for example).
What's the best gap trading strategy for beginners?
The gap fade on small common gaps is the most beginner-friendly. Pick an index (S&P 500, Nasdaq 100) on an uneventful day, find a 0.3–0.7% gap with no major news catalyst, enter a fade trade back toward the previous close, with a tight stop just beyond the gap's extreme. This strategy has a 60–70% win rate and teaches the basics of gap behavior. Avoid trading earnings or news gaps as a beginner — they require specialized knowledge and carry far more risk.
What's the difference between a gap and a spike?
A gap occurs at session open and leaves a visible empty space on the chart — there was no trading in that price range. A spike happens during active trading and shows as a long wick on a single candle — price traded at those levels even if briefly. Gaps signal overnight or weekend supply/demand imbalances; spikes signal intraday short-term imbalances. They're analyzed differently: gaps focus on fill probability and trend continuation, spikes focus on rejection patterns and wick analysis.
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Kacper MrukXAUUSD & ETHUSD Trader | Macro + options data | Think, don't follow
Creator of Take Profit Trader's App. Specializes in XAUUSD and ETHUSD, combining macro analysis with options data. He teaches not how to trade, but how to think in the market. Actively trading since 2020.
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