Opening gap day trading is a high-probability strategy that focuses on trading the price gap that often occurs when a market opens at a significantly different level than its previous close. These gaps can create immediate trading opportunities as the market either fills the gap or continues in the direction of the open.

In this article, we explain how opening gap day trading works and how to apply it successfully across different markets.

What is an Opening Gap in Trading?

An opening gap happens when:

• The market opens above or below the previous day’s close.
• External factors like earnings releases, news events, or overnight market sentiment cause the gap.

Types of gaps:

• Gap Up: Opens higher than the previous close.
• Gap Down: Opens lower than the previous close.

Gaps tend to either fill (price retraces to the previous close) or continue (price moves further in the gap direction).

Why the Opening Gap Day Trading Strategy Works

• Immediate Volatility: Gaps often trigger fast and decisive moves.
• High Probability Setups: Many gaps tend to fill within the same trading session.
• Clear Entry and Exit Points: Based on the gap size and direction.

How to Set Up the Opening Gap Day Trading Strategy

Here’s how to prepare:

1. Focus on assets that gap regularly, like major stocks (e.g., Tesla, Apple), gold, NASDAQ, and EUR/USD.
2. Use a 1-minute, 5-minute, or 15-minute chart for precision.
3. Identify the size and direction of the gap at the open.

Mark the previous day’s closing price on your chart as the key reference point.

How to Trade the Opening Gap Day Trading Strategy

Here’s a structured approach:

1. Measure the Gap

• Small Gap: Less than 0.5% — more likely to fill quickly.
• Large Gap: More than 1% — could either fill or continue trending.

Pro Tip: Moderate gaps (0.5%–1%) often offer the highest-probability trades.

2. Entry Strategy

• Gap Fill Setup:
  • Price shows hesitation to continue in the gap direction (e.g., reversal candlesticks).
  • Enter a counter-trend trade toward the previous close.
• Gap Continuation Setup:
  • Strong momentum at the open (e.g., wide range candles, rising volume).
  • Enter in the direction of the gap with the trend.

Confirm with momentum indicators like RSI (moving strongly above 60 or below 40) or MACD crossovers.

3. Stop-loss Placement

• For gap fill trades, place the stop-loss just beyond the high (for shorts) or low (for longs) of the opening range.
• For gap continuation trades, place the stop-loss below (for longs) or above (for shorts) the opening range.

Tight stops protect against false moves, which are common in volatile openings.

4. Profit Target

• For gap fill trades: Target the previous day’s closing price.
• For gap continuation trades: Target the next intraday resistance or support level.

Trailing stops can help capture extended moves if momentum remains strong after the initial gap move.

5. Risk Management

• Risk only 0.5% to 1% of your trading account per trade.
• Only trade clear setups where the gap size and momentum conditions align.

Best Practices for Opening Gap Day Trading

• Focus on Volume: Strong volume confirms that the gap move is genuine.
• Trade Early: Most gap moves happen within the first 1–2 hours of the session.
• Use Tight Stops: Volatility at the open can be extreme — protect your capital.

When to Avoid Gap Trading

• When gaps are very large (>3%) without clear support/resistance nearby.
• During major economic releases when gaps can lead to unpredictable reversals.

Common Mistakes to Avoid

• Chasing Gaps Blindly: Always wait for confirmation through candlestick patterns or momentum indicators.
• Ignoring Market Sentiment: News driving the gap should be aligned with your trade idea.
• Overleveraging: Volatile gaps can result in sharp losses if not managed carefully.

Advantages of the Opening Gap Day Trading Strategy

• Quick Trading Opportunities: Gaps offer fast, high-probability setups.
• Clear Levels: Previous close provides a logical magnet or barrier.
• Works Across Markets: Forex, stocks, indices, and commodities.

Conclusion

Opening gap day trading offers traders a powerful, systematic way to capitalise on overnight news, earnings surprises, or major sentiment shifts. By analysing the gap size, waiting for confirmation, managing risk tightly, and choosing the right setup (gap fill or continuation), traders can consistently profit from these explosive intraday moves.

To master professional techniques like opening gap day trading and build a complete trading plan, explore our expert Trading Courses designed to help you trade smarter, faster, and more successfully.