Gold Interday Gap Strategy

A gap occurs when a TSX gold ETF opens at a different price than it closed the previous day. This happens because the TSX closes at 16:00 ET while global gold trading continues overnight on Globex (COMEX) and in London. The 9:30 ET opening price reflects overnight global moves creating a visible gap on the chart between the previous close and the current open.

Most gaps fill because they represent a temporary price inefficiency. The market did not trade through those prices intraday and tends to return to the previous close through mean reversion. Small gaps fill 70-80 percent of the time as they typically represent normal overnight flow rather than a significant event.

For a gap down fill trade, buy near the open within the first 15 minutes after 9:30 ET. Set the stop below the gap low with a small buffer. Set the target at the previous day close. This profits if price rises back to fill the gap. Exit if price falls below the stop indicating gap extension.

Focus on small gaps of 0.3-0.5 percent which have the highest fill probability of 70-80 percent. Medium gaps of 0.5-1.0 percent are tradeable but selective. Large gaps above 1.0 percent have only a 30-40 percent fill rate and should not be automatically faded.

Exit if the stop is hit, indicating gap extension. There is no forced square-off on a TSX cash equity position, but if the gap is showing no progress by early afternoon, use a discretionary time-based exit around 15:30 ET rather than holding a loser into the close hoping for a late fill.

Before the 9:30 ET open, check the Globex gold price and the London LBMA AM auction versus where gold was when the TSX closed. Calculate the percentage change and apply it to the ETF previous close for an expected gap. Also check the USD/CAD change since for an unhedged ETF the currency contributes to the gap. Assess whether gold moved gradually or sharply to evaluate gap quality, and remember the TSX has no pre-market tape so you rely on these global proxies and the dual-listed PHYS US pre-market.

Gaps into support or resistance have a higher fill probability as the levels provide defence. A gap down into support finds buyers at that level aiding the fill. Gaps through levels are potential breakaways with lower fill probability. Use the levels for stop placement and target adjustment.

Key filters include gap size of 0.3-1.5 percent, no major news catalyst, a gap against the prevailing trend, a gap into support or resistance, and avoiding Friday. Score each filter and require a minimum of 3-4 out of 5 for a trade. Higher filter scores correlate with better win rates.

Hold overnight only if the gap has partially filled showing progress, no major events are expected overnight, and the position is sized appropriately. Hold it either fully paid in a cash account or on a margin account accepting the overnight financing, set a stop for protection, and reassess at the next open. Exit the same day if there is no progress.

Track win rate overall and by gap size, profit factor, average win and loss per share, win rate by direction for gap up versus down, and win rate by day. Target a 55 percent plus win rate and a 1.5 plus profit factor. Use the statistics to adjust filters and position sizing for different gap categories.

Define precise rules for gap identification, filters, entry, exit, and sizing. Backtest on 5 plus years of TSX gold ETF opening data. Calculate win rate and profit factor by category. Validate on out-of-sample data ensuring similar performance. Test robustness across different market conditions. Target a profit factor above 1.5, and remember position size is capped by buying power on an unleveraged ETF.

A long call for a gap down fill and a long put for a gap up fill provide defined risk, with the put route avoiding a share short. Spreads reduce cost for moderate conviction. Straddles capture either fill or continuation for large uncertain gaps. Options eliminate stop slippage and allow safe overnight exposure, but verify chain liquidity since single gold-ETF options can be thin and the dual-listed PHYS US-listed chain is often deeper.

An island reversal has a gap in one direction followed by a gap in the opposite direction. Price becomes isolated like an island between two gaps. This is a powerful reversal signal. An island top, gap up then gap down, is bearish, and an island bottom, gap down then gap up, is bullish. Trade in the direction of the second gap.

An exhaustion gap occurs after an extended trend of 5 plus days representing a final push with high fill probability so fade it. A breakaway gap occurs at a pattern breakout representing trend initiation with low fill probability so do not fade it. Context and location determine the gap type.

Allocate 10-15 percent of the portfolio to the gap strategy. Lower than trend strategies due to its opportunistic nature. Gold should be 50-60 percent of the gap allocation with silver and energy ETFs filling the rest. Maximum 1.5 percent risk per trade. Be aware of other strategy positions to avoid conflicts when a gap aligns with an existing position.