Gap Fill Strategy

Q: How early do I need to be watching for gaps?

Be ready at market open (10:00 AM ASX). Gaps are identified by comparing the opening price to the previous close. Most gap fill trades are entered within the first 15-30 minutes after open.

Q: Do all gaps fill eventually?

No. While 80-85% fill within 5 days, some gaps (especially breakaway gaps) may never fill or take months. The strategy focuses on high-probability same-day or short-term fills.

Q: What's the difference between gap up and gap down trading?

Gap up: You short, expecting price to fall back to fill the gap. Gap down: You go long, expecting price to rise back to fill the gap. Both target the previous close.

Q: Why should I wait 15 minutes before entering?

The first 15 minutes have high volatility and false moves. Waiting allows the market to establish direction. If price starts moving toward the fill, enter. If it extends the gap, avoid the trade.

Q: What if the gap doesn't fill by end of day?

You can hold overnight for multi-day fill (wider stop needed) or exit at your time stop. Many traders prefer same-day resolution. Unfilled gaps become support/resistance levels.

Q: How do I identify gap type?

Common: Gap in trading range, no news. Breakaway: Gap at resistance/support break with volume surge. Runaway: Gap mid-trend. Exhaustion: Gap after extended trend with high volume. Context is key.

Q: What volume ratio should I use as a filter?

Volume ratio <1.5× average is preferred. Above 2× average, don't fade - high volume shows conviction. Low volume gaps are more likely temporary imbalances that will correct.

Q: Should I use partial or full fill targets?

Scaled approach works best: Take 1/3 at 50% fill, 1/3 at 75%, 1/3 at 100%. Or use 75% as single target for best risk-adjusted returns (68% WR vs 55% for full fill).

Q: How does the opening range breakout confirm gaps?

First 15-30 min establishes a range. Break above range high (for gap down) confirms buyers and fill likely. Break below range low (for gap down) suggests extension - avoid fade.

Q: How do I handle dividend gaps?

Never fade dividend gaps. The price adjusts for the dividend payment - it's not a real gap. If CBA pays $2 dividend and opens $2 lower, that's the correct price, not a gap to fade.

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Capitalizes on the tendency of price gaps to fill (close) over time

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Quick Reference

Strategy Type	Intraday/Swing Mean Reversion Gap Trading System
Market Outlook	Capitalizes on the tendency of price gaps to fill (close) over time
Risk Profile	Defined by gap size or ATR-based stops
Reward Profile	Targets gap fill level (previous close)
Time Horizon	Intraday to short-term swing (1 hour to 3 days typical)
Best Markets	Range-bound markets, common gaps, exhaustion gaps
Signal Type	Gap identification with fade entry and fill target

Payoff Profile

Counter-trend system that profits when gaps fill (price returns to previous close)

Australia Market Details

Market Hours	ASX: 10:00 AM - 4:00 PM AEST
Gap Formation	Gaps form between 4:00 PM close and 10:00 AM open next day
Best Underlyings	Index gaps from overnight global moves • BHP, CBA, CSL, RIO - liquid stocks with regular gaps • STW, IOZ - broad market gap plays • Stocks with US ADRs gap more (BHP, RIO)
Timeframe Recommendations	15-minute to 1-hour for same-day fills • For multi-day gap fill trades • Major gap analysis and context • Most gaps attempt to fill within first 2 hours
Gap Components	Open price > Previous day high • Open price < Previous day low • Open above/below close but within range • Open completely outside previous range
Common Parameters	0.5% (avoid noise) • 3% (larger gaps less likely to fill same day) • Previous close or 50-80% of gap • First 2 hours for day trades
Asx Considerations	US and European moves create ASX gaps • Mining gaps follow commodity prices • Earnings, dividends create unfadeable gaps

Frequently Asked Questions

How early do I need to be watching for gaps?

Be ready at market open (10:00 AM ASX). Gaps are identified by comparing the opening price to the previous close. Most gap fill trades are entered within the first 15-30 minutes after open.

Do all gaps fill eventually?

No. While 80-85% fill within 5 days, some gaps (especially breakaway gaps) may never fill or take months. The strategy focuses on high-probability same-day or short-term fills.

What's the difference between gap up and gap down trading?

Gap up: You short, expecting price to fall back to fill the gap. Gap down: You go long, expecting price to rise back to fill the gap. Both target the previous close.

Why should I wait 15 minutes before entering?

The first 15 minutes have high volatility and false moves. Waiting allows the market to establish direction. If price starts moving toward the fill, enter. If it extends the gap, avoid the trade.

What if the gap doesn't fill by end of day?

You can hold overnight for multi-day fill (wider stop needed) or exit at your time stop. Many traders prefer same-day resolution. Unfilled gaps become support/resistance levels.

How do I identify gap type?

Common: Gap in trading range, no news. Breakaway: Gap at resistance/support break with volume surge. Runaway: Gap mid-trend. Exhaustion: Gap after extended trend with high volume. Context is key.

What volume ratio should I use as a filter?

Volume ratio <1.5× average is preferred. Above 2× average, don't fade - high volume shows conviction. Low volume gaps are more likely temporary imbalances that will correct.

Should I use partial or full fill targets?

Scaled approach works best: Take 1/3 at 50% fill, 1/3 at 75%, 1/3 at 100%. Or use 75% as single target for best risk-adjusted returns (68% WR vs 55% for full fill).

How does the opening range breakout confirm gaps?

First 15-30 min establishes a range. Break above range high (for gap down) confirms buyers and fill likely. Break below range low (for gap down) suggests extension - avoid fade.

How do I handle dividend gaps?

Never fade dividend gaps. The price adjusts for the dividend payment - it's not a real gap. If CBA pays $2 dividend and opens $2 lower, that's the correct price, not a gap to fade.

How do global markets affect ASX gap fill probability?

When US gaps same direction as ASX, fill probability drops ~8% (global conviction). When US gaps opposite, ASX fill rate increases ~5% (divergence). Factor global context into gap scoring.

What is the optimal gap size for different timeframes?

Same-day fill: 0.5-2.0% optimal. Multi-day fill: 2-4% acceptable. Very large gaps (>5%): Different dynamics, often news-driven. Smaller gaps have higher same-day fill probability.

How do I build a gap fill scoring system?

Score: Gap size (+1-3), Volume ratio (+1-3 for low, -3 for high), Gap type (+3 common, -3 breakaway), News (-5 if major), Trend (+2 counter-trend), Technical levels (+1-2). Trade score >7.

What is an island reversal and how do I trade it?

Island reversal: Gap up, trade in range, gap down (or vice versa). Creates isolated 'island' of prices. Strong reversal signal. Trade the second gap direction. Target: Fill both gaps.

How do I automate gap detection?

Compare today's open to yesterday's close at market open. Filter by size (0.5-3%), volume (<1.5× avg), and news. Score each gap. Alert on high-score gaps. Enter after 15-min confirmation.

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