Trading Opening Gaps with Gap-Scaled Targets and Stops

Summary

This strategy treats a gap between the prior close and the current open as a potential move to trade. It classifies the gap direction and takes a position when the gap, measured as a percentage of the prior close, meets a configurable trigger. A gap down prompts a long entry and a gap up prompts a short entry, reflecting an expectation that price may move back into the gap. The entry is set at the open, with stop and target distances calculated as configurable proportions of the gap size.

The script closes positions when price crosses the target intrabar or the closing price crosses the stop. The author notes that opening gaps may be especially interesting and that the default proportions need adjustment for the instrument being traded. The supplied excerpt does not identify a tested market, timeframe, or performance results, so it offers no evidence that gaps reliably fill or that the example settings are profitable. Outcomes may depend on gap definition, execution, and market-specific parameter calibration.

Key ideas

• The strategy measures the gap between the previous close and the current open.
• A sufficiently large gap down signals a long, while a gap up signals a short.
• Stop and target levels are scaled to the measured gap size.
• The author recommends adjusting trigger and exit proportions to the traded market.
• No market-specific test results or evidence of profitability are provided.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.