AJ Monte: Why Gap Fills Work 80% Of the Time, & How to Trade Them (2024)

FAQs

Why do gaps fill trading? ›

Gaps in a stock chart occur when the price of a stock moves suddenly up or down, usually in response to news outside of market hours. In some cases, these gaps don't last – rather, they're “filled” as trading action brings the price back towards the previous close. These gap fills present opportunities for trading.

For successful gap trading, traders can employ various strategies. These include monitoring share volume around gaps to assess the strength of the move, using price patterns to predict the direction of the gap, and understanding the role of buyers and sellers in influencing these gaps.

A stock gap is an area discontinuity in a security's chart where its price either rises or falls from the previous day's close with no trading occurring in between. Gaps are common when news causes market fundamentals to change during hours when markets are typically closed, for instance, an earnings call after-hours.

Gap trading is a trading strategy that revolves around exploiting price gaps in the financial markets. These gaps occur when the opening price of an asset significantly differs from the previous day's closing price. Gap traders aim to capitalize on these gaps.

The gap fill trading strategy involves trading price gaps with the expectation that the market will fill the gap shortly after it occurs. Traders look for gap fill setups to enter trades in the direction opposite to the opening gap, anticipating a retracement or reversal in price.

Gap trading strategies

A gap up stock in an uptrend provides a good opportunity to buy and hold a long position. A gap down stock experiencing a decline in price in an uptrend provides a good opportunity to buy. A gap down stock in a downtrend provides a good opportunity to short sell.

Some traders follow something called the "10 a.m. rule." The stock market opens for trading at 9:30 a.m., and the time between 9:30 a.m. and 10 a.m. often has significant trading volume. Traders that follow the 10 a.m. rule think a stock's price trajectory is relatively set for the day by the end of that half-hour.

Avoiding the first 15 minutes is a common practice based on experience and strategic decision-making rather than any mandated rule. It is a discipline adopted by many traders to avoid unnecessary risk and to wait for the market to establish a clearer direction.

1. Gap filling by corporate issuers: First and foremost, our theory predicts that corporate issuance will fill in the supply gaps created by changes in government financing patterns. When the government issues more long-term debt, firms should respond by issuing more short-term debt, and vice-versa.

What are the 4 types of gaps? ›

Gap Selling involves identifying and addressing the gap between a prospect's current situation and their desired future state. With gap selling, you would deeply understand their pain points and gaps and position your offering as the ideal solution to a prospect's specific challenges.

Gap filling refers to the process of inferring and inserting contractual terms into a contract when the contract fails to specify all necessary terms for the contract to be performed. Courts rely on a series of gap filling rules to carry out this process.

Flow toxicity is the case where market makers are providing liquidity at a loss to informed traders. Clearly flow toxicity is related to new information entering into the market through an increase of informed trading. Therefore VPIN, a measure of this toxicity, is a factor of the price discovery mechanism.

What Is the Three Gap Rule? The Three Gap Rule happens when three gaps appear during an uptrend. Traders should watch for these gaps because they might mean the trend is about to change, and the gaps could be filled on the downside.

In any given market, there are areas that lack adequate supply and, therefore, experience increased demand for a good or service. As a marketing professional, identifying these market gaps and capitalising on them can accelerate a business' growth and make its services more satisfying to customers.

Fair value gaps provide specific levels where traders can enter trades, making it easier to plan and execute trades. Gaps might not always be filled, leading to potential losses if the price does not behave as expected.

A gap up occurs when a stock's opening price exceeds its previous day's high. This situation typically arises due to positive news or events that trigger increased buying interest in the stock. A gap up is generally considered bullish, suggesting a strong upward stock price momentum.

CME gap closes are likely, but they can take weeks to happen. CME gap closes are never certain and may become less likely over time. For example, if Bitcoin continues its bullish trend, the CME gap strategies mentioned earlier will likely turn out less successful than they have been in the last months.