The Weekly Gap Fill Strategy is a trading approach that focuses on price gaps that occur over the weekend or between weekly trading sessions. This strategy is based on the assumption that many of these gaps, especially common gaps, will eventually fill, meaning price will revert to the previous week’s closing price.

This strategy is particularly useful for swing traders and position traders who aim to capitalise on price reversion after market moves that occur over the weekend or between weekly sessions.

What Is a Weekly Gap?

A weekly gap occurs when the market opens at a significantly different price compared to the previous week’s close. This typically happens due to:

• Overnight news or economic reports released over the weekend
• Geopolitical events that shift market sentiment
• Earnings reports or corporate news released after market hours
• Global market reactions (e.g., from stock exchanges in other time zones)

In the forex market, this type of gap can occur between the Friday close and the Sunday or Monday open, while in equity markets, it can be observed between the close of trading on Friday and the opening on Monday.

Why the Weekly Gap Fill Strategy Works

• Gaps can be caused by emotional or speculative moves, which often lead to overreactions.
• Mean reversion is a natural phenomenon in financial markets, and many gaps will fill as markets stabilise after the initial response.
• Volume typically supports the gap move at first, but as the day or week progresses, profit-taking and reversal traders often come in, pushing price back toward the previous week’s close.
• The previous week’s close often acts as a magnet, pulling price back, especially if the gap occurred due to non-fundamental reasons.

How to Trade the Weekly Gap Fill Strategy

1. Identify a Valid Weekly Gap

Look for:

• A gap of 1% or more between the previous week’s close and the current week’s open.
• Volume confirmation: The gap should occur with strong volume, indicating a solid move.
• No major trend continuation indicators are present. A gap following a long trend is more likely to be a continuation than a fill.

Mark the previous week’s close as the target for the gap fill.

2. Confirm the Type of Gap

It is essential to identify if the gap is likely to fill or continue:

• Common Gaps: Gaps with no major news catalyst, often resulting in price retracing to the previous close.
• Breakaway Gaps: Large gaps caused by significant news or earnings; these are less likely to fill and more likely to continue in the direction of the gap.
• Exhaustion Gaps: Gaps that appear at the end of a trend and usually fill quickly.

For the gap fill strategy, focus on common gaps. If the gap is too large or driven by major news, it may not fill immediately.

3. Wait for Confirmation of Reversal

After the gap occurs:

• Watch for price action that shows signs of exhaustion in the gap direction (e.g., large wicks, failed breakouts, or reversal candles like pin bars, engulfing candles, or doji candles).
• Look for a consolidation phase or pullback into the gap area (previous week’s close) as this provides a better entry.
• Check for RSI or Stochastic Oscillator readings that suggest overbought/oversold conditions (above 70 or below 30).

Only enter after price action confirms a reversal toward the previous week’s close.

4. Enter the Trade

For Gap Fill Long (Gap Down):

• Buy when price shows signs of reversing near the gap low and begins moving toward the previous week’s close.
• Look for bullish reversal signals like a hammer, bullish engulfing, or pin bar at or near the gap low.

For Gap Fill Short (Gap Up):

• Sell when price begins to reverse from the gap high and heads toward the previous week’s close.
• Look for bearish reversal signals like a shooting star, bearish engulfing, or doji near the gap high.

5. Stop-Loss and Take-Profit

Stop-Loss:

• For long trades: Place the stop-loss below the gap low (for gap down) or below the recent swing low if entering after a pullback.
• For short trades: Place the stop-loss above the gap high (for gap up) or above the recent swing high.

Take-Profit:

• Target the previous week’s close or major support/resistance levels.
• Trailing stop: As the gap fills, use a trailing stop to lock in profits if price continues toward the previous close.

6. Risk Management and Trade Management

• Avoid trading large gaps or those with high news involvement (like earnings reports or major economic releases).
• Use a 1:2 risk-to-reward ratio as a minimum for most trades.
• Partial profit-taking is recommended if price starts to stall before filling the entire gap.
• Monitor volume closely—if volume begins to dry up while price moves toward the gap fill, this could signal a loss of momentum.

Strategy Summary Table

Component	Details
Gap Type	Weekly Gap (gap up or down)
Setup Type	Gap fill (reversal towards previous week’s close)
Entry Trigger	Reversal pattern (engulfing, hammer, shooting star) at gap extreme
Stop-Loss	Beyond gap low/high or recent swing level
Take-Profit	Previous week’s close or major support/resistance levels
Timeframe	15M–1H for entry; 4H for trend confirmation
Best Use Case	FX, indices, stocks after non-news-driven weekend gaps

Example: EUR/USD Weekend Gap Fill

• EUR/USD closes at 1.2000 on Friday, but gaps down to 1.1900 on Sunday after negative economic news.
• Price forms a bullish engulfing candle near 1.1900 on the 15-minute chart.
• The trader enters long above 1.1915, targeting 1.2000 (previous week’s close).
• Price fills the gap and reaches 1.2000 within a few hours, offering a 2R return.

Conclusion: Profit from Weekend Price Imbalances with Gap Fills

The Weekly Gap Fill Strategy takes advantage of overnight imbalances in price, often caused by news or sentiment shifts. By waiting for confirmation and using a structured approach, traders can profit from price returning to the previous week’s close.

To learn how to spot, manage, and trade gap fills like a professional, enrol in our Trading Courses at Traders MBA and improve your understanding of market psychology and price action.