Gap Trading

There is a 66–70% statistical probability that a price gap between the prior session close and the current session open will be filled during the current session. Filtering opening range breakouts to only those where a session gap exists makes the strategy more selective and increases the odds in the trader's favour. The gap fill trade targets the prior session close with a mechanical risk-to-reward of approximately 1:1.5 to 1:2. When a gap exists between the previous session's close and the current session's open, there is a 70% probability the gap will be filled during that session. The gap fill edge is reduced in bullish trending environments because the trade is taken counter-trend, increasing the probability of failure. The stop loss for a gap fill short is placed slightly above the gap origin, with stop-hunting acknowledged as an inherent risk of the setup. A gap fill entry on the 5-minute timeframe requires a candle close outside the opening range with a large volume bubble centered in the candle body, not at the top. The gap fill level can be used as a take-profit target when trading gap-driven breakouts.