Gap Fill Strategy

Gaps represent temporary overnight imbalances - accumulated orders that cause price to jump at open. These imbalances often correct as the day progresses. Traders who missed yesterday's close want to trade at those prices, profit-takers reverse gap moves, and market makers adjust positions. The previous close acts as a fair value 'magnet'.

Optimal gap size is typically 0.5-1.5%. Smaller gaps (<0.3%) are noise and costs exceed profits. Very large gaps (>2-3%) often represent fundamental changes and may not fill same day. Start with 0.5-1.5% gaps in ranging markets with no specific news.

Generally no. Earnings create 'news gaps' where fundamental value may have genuinely changed. The new price level may be justified, meaning no fill. Skip stocks with recent earnings announcements. Trade common gaps (no news) for highest probability.

Most gap fills occur within the first 2-3 hours of trading. If a gap hasn't filled by midday (12:00 PM), it's less likely to fill that day. Many traders use time stops and exit by 12:00-2:00 PM if the gap hasn't filled.

Yes, spread betting allows small position sizes (e.g., £1/point). The strategy works with smaller accounts, but transaction costs become proportionally larger. Focus on higher probability setups (score 12+/15) to maximize edge. A £5,000+ account makes gap trading more practical.

Use multiple filters: Gap size (0.5-2%), no earnings/major news, ranging market context, technical confluence at fill target, normal volume at open. Score each gap using these factors. Only trade gaps scoring above threshold (e.g., 10/15). This dramatically improves win rate.

Both approaches work. Immediate entry captures full gap fill potential but risks gap extension. Waiting (5-15 minutes) provides confirmation but may miss part of quick fills. Test both on your instruments. For small gaps, immediate often works. For larger gaps, waiting provides safety.

Set multiple targets: 50% fill, 75% fill, 100% fill. Scale out of position at each level. For example, exit 40% at 50% fill, 30% at 75% fill, remainder at 100% fill or stop. Move stop to breakeven after first exit. This locks profits while allowing for full fill.

That's what the stop loss is for. Place stop beyond the gap extreme (above gap high for shorts, below gap low for longs). If hit, accept the loss and move on. Not all gaps fill - that's why we use stops and proper position sizing. Some extension is normal before fill.

Typically 1-5 depending on opportunities. Don't force trades - only take qualified gaps (high score). Limit to 2-3 same-sector positions due to correlation. Set daily loss limits (2-3% account) and stop if hit. Quality over quantity - one good gap trade beats five marginal ones.

The LSE opening auction (7:50-8:00 AM) reveals order imbalances that create gaps. Watching indicative price evolution and final imbalance helps classify gap quality. Persistent large imbalances suggest conviction (harder fill). Small imbalances that resolve quickly suggest temporary effect (easier fill).

Credit spreads (bear call for gap up, bull put for gap down) are typically optimal. They benefit from IV crush as uncertainty resolves and from time decay. Avoid 0DTE for slow fills - use 1-2 days minimum. Place short strike at gap open level to maximize probability.

Create morning scan at 7:55 AM across universe (FTSE 100). Calculate and score all gaps. Rank by fill probability. Select top 3-5 qualified gaps with sector diversification. Allocate 0.5-1% risk each. Track fill rates by instrument over time. Continuously optimize parameters.

Ranging markets: High fill rates (70%+) as gaps represent noise. Trending markets: Lower fill rates, especially trend-direction gaps. High volatility: More gaps but lower fill consistency. Test your system across regimes. Consider reducing size or skipping gaps in strong trend environments.

Individual gaps have limited capacity - large orders move prices at open. Across FTSE 100, daily capacity might be £500K-1M before market impact becomes significant. Retail traders face no practical capacity constraints. Scale carefully and monitor slippage as position sizes increase.