Trading the gaps



A Gap is what it is….a Gap between the opening bar and its last trading days close. Do not complicate this simple thing by adding more criteria to it.

The only criteria….the Gap has to be visually obvious to you. Also, please dont confuse this with the Exhaustion Gap, Breakdown Gap, Continuation Gap etc that you read about in Technical Analysis literature.


A few chart examples of Gaps to make it more clear:


We are basically trading the Visually Obvious Gaps and marrying it with a few of the other concepts.Above,we got a WRB move on the daily chart on Nov 4th,evidenced as a strong uptrend on the 60min Flow Charts.The Close was at or near the high of the day.Next day opens with a huge gap up.Strategy is to wait for the first 5mins and Short the Gap below the low of the 5min candle…..After 30mins,ADD to the positions by shorting the low of the 30min candle.We look to exit the moment a previous 2 candle high on the 60min charts is violated.If not,we look to hold till End of Day.

At the End of the Day,take half of your positions as profits.Hold the back half.More in the next!


Once again,we have a set up,…..a strong Wide Range Candle on Oct 13th,2008.The 60min charts above shows that as a strong rally closing at or naer its highs.The next day,Price gapped up.Once again,visually obvious,a big gap up.Short the 5min low,Add at the 30min low.Hold till End of Day.Take off half at the end of that day.The following day,price gapped down and in our favour.Bring stops down to the low of the previous day.Take off the back half at the End of the 2nd Day.

This entire set up requires a Wide Range Bar the previous day,a Huge Gap up the following day,the first bar has to demonstrate Bearishness,the 30min has to agree with it showing the same weakness.Strategy is to pull half on one day,and another half the following day.

The Third Arrow denotes the same Pattern in Reverse…….a Huge Gap down after 2 strongly down days.And followed by an opening Bull Candle.Here,the expected move up triggers,the 30min high ADD does not.Instead Price pulls back triggerring our Stops.Price then does an about turn and takes out the highs of the day and blasts off,covering the gap.Entry at the breakout highs.Exit half as always by end of the day.


The Focus is on ARROW 1.A Gap down after a WRB on the daily chart,and seen in the 60min charts as a strong uptrend,and closing strong.Painful gap down for the bulls holding overnight,as the gap down eliminates all gains as price opens nearly around where the price opened up the previous day.The Bulls are trapped,they get into a strong Denial Phase ,hoping against hope that Price comes back up.In all of this is a strong selling phase.

Our startegy when we get this type of a gap…..some call it a Pro Gap,Candlestick lovers call this pattern a Kicker Pattern… to merely short the 5min bar and add to the short at 30min lows.Once again,this is a Setup where we capitalise on that rude shock.So half off by end of the day.Half the following day with tight stops.


A rude awakening…..Swing and Position Traders,all bearish,and enjoying the move down,unaffected by the sideways pattern and expecting a continuation move down are rudely awakened on 24th by a gap up…..a huge breakaway gap,gapping over all daily resistance.This trade is a no brainer.Buy the 5min high,Add over the 30min high.Take off a third by the end of that day.And keep the rest for a further move up.Stops are the 5min bar low with a wide filter.