Stock Gap Trading

Look for a 'jump' in price between yesterday's close and today's open. The gap appears as a space on the chart where no trading occurred. Compare today's first candle opening price with yesterday's last candle closing price. Most charting platforms highlight gaps automatically.

No. Only trade gaps that meet your criteria: minimum size (>0.5%), a clear catalyst (or lack thereof for fades), proper volume confirmation, and good risk/reward. Most gap traders take 1-2 trades per day maximum. Quality over quantity - and on thinner SGX names, be extra selective.

Gap up simply describes the opening condition (opens higher than previous close). Gap up follow is a trading STRATEGY - you trade in the gap direction (go long), expecting price to continue higher. The opposite would be gap up fade (short, expecting fill).

About 50% of gaps fill the same day and about 70% fill within 3 days. However, strong breakaway gaps may not fill for weeks or months. Gap fill probability depends on gap type, catalyst strength, and volume.

Wait for the opening range to form (first 15-30 minutes from the 9:00 AM SGT open). Enter when price breaks the opening range in your expected direction. Avoid the first 5 minutes (too volatile); liquidity also thins into the 12:00-1:00 PM midday break and again late in the day.

Pre-results: consider a warrant straddle if expecting a large move. Post-results: wait for the opening range, assess the catalyst (beat/miss, guidance) and check volume. Results gaps are often large but don't assume continuation - overreactions are common, and a first reaction is frequently overdone if the gap is >5%. Remember most SGX firms report half-yearly, so these events cluster in the Feb and Jul-Aug windows.

Context is key. Exhaustion gaps occur after extended trends (20+ days in one direction), have extreme RSI, and quickly reverse. Breakaway gaps occur at pattern breakouts, have high volume with follow-through, and don't quickly reverse. Also check: was there a catalyst? Exhaustion gaps often lack one.

Both have merits. Index (STI) gaps are more predictable (driven by known global factors and the MSCI Singapore futures) but smaller. Stock gaps are larger with clearer catalysts but more volatile. Many traders focus on 1-2 stock gaps plus the MSCI Singapore futures for diversification - and note the STI is bank-heavy, so DBS/OCBC/UOB dominate index moves.

Volume > 1.5x average supports a gap follow (conviction behind the move). Volume < 1.0x average supports a gap fade (no conviction). Check volume through the day - if it increases in your trade direction, conviction is building; declining volume warns of a potential reversal. Be cautious on thin SGX small/mid caps where a single order can distort the ratio.

Single-stock options are thin on SGX. For index exposure use MSCI Singapore Index Futures. For single stocks, structured warrants give listed call/put optionality, Daily Leverage Certificates (DLCs) give fixed daily leverage (best for clean, short directional moves), and CFDs via MAS-regulated brokers give flexible long/short leverage. Post-gap follow: in-the-money call/put warrants or a long/short DLC. Pre-event: a call+put warrant pairing.

Collect historical gap data (size, direction, catalyst, fill rate, time to fill). Build features: gap size, volume ratio, pre-gap trend, sector context, the VIX, and the STI's position vs its 200-day MA. Train a classifier for fade vs follow prediction. Backtest with walk-forward validation. Key metrics: win rate >50%, profit factor >1.5. Pool thin Singapore single names by sector to avoid overfitting.

Island reversal: gap up, 1+ days of trading, then gap down (or the reverse). Wait for the second gap to complete the 'island'. Enter in the direction of the second gap. Very high probability (~75%+). Target: full island range + extension. Stop: beyond the island high/low. Confirm on visible volume - thin names can fake an island on light trade.

Bull market: favour gap-up follows and gap-down fades. Bear market: favour gap-down follows and gap-up fades. Ranging: favour fades both directions. High VIX: reduce position size 50%, widen stops, expect larger gaps. Low VIX: standard strategies, tighter stops. Classify the regime weekly (STI vs 200-day MA, VIX, breadth) and adjust parameters.

A pre-market scanner (US close, SGX MSCI Singapore futures overnight, SGXNet news), an opening-gap detector with classification, an opening-range calculator, a signal generator for entry triggers, bracket-order execution (entry + stop + target), risk management (daily loss limits, max trades), and a backtesting framework for refinement.

Pre-event: warrant IV is elevated, premium is expensive. Post-event: IV crushes (drops), hurting long premium. For post-gap warrants use in-the-money (less IV-sensitive) and enter quickly while IV is still elevated. DLCs have no option IV but carry a daily-reset/path-dependency cost, so they suit clean fast moves and short holds. For gap follow: in-the-money call/put warrants or a directional DLC. For gap fade: a defined-risk warrant or warrant spread.