Trading Session Gaps with Gap-Fill Targets or Breakout Stops

Summary

This strategy identifies session gaps by comparing the new opening price with the prior bar’s high or low, and checks that the opening bar’s body remains beyond the previous body. It sets a reference level at the previous candle body, representing the price area to which the gap may return. In the default mode, it trades against the gap direction and exits at that level, treating a fill as a target. An invert option instead follows the gap and uses the same level as a stop.

Positions can be closed at the next session, when a new gap appears, or when a reverse position is opened. The accompanying tests cover three technology stocks on a 15-minute chart, without spread or commissions. The reported default-mode results are negative across the examples despite win rates above 60%; the author says inversion produced better results but provides no figures for that mode. This small sample does not establish a robust edge, and omitting trading costs limits the usefulness of the reported backtest.

Key ideas

• A gap requires an opening price beyond the previous bar’s high or low, with the candle bodies separated.
• The prior candle body supplies the level used to define a gap fill.
• Default trades fade gaps and target a fill; inversion follows gaps and treats the fill level as a stop.
• Three stock tests report negative results for the default mode and omit costs and spread.
• The limited examples do not establish how either mode performs across assets or periods.

Tags

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