Gap trading is a technical approach that focuses on price gaps, when a market opens notably higher or lower than the previous close.

Gap trading is a technical approach that focuses on price gaps, when a market opens notably higher or lower than the previous close. These gaps often follow earnings reports, economic releases, or unexpected news, and they can hint at strong momentum or an imminent reversal. Traders categorize gaps as breakaway, runaway (continuation), or exhaustion, each with different probabilities and risk profiles. Popular tactics include gap-and-go moves powered by high relative volume, fading the gap back toward the prior day's range, and gap-fill setups that target nearby support or resistance. Effective preparation means scanning premarket leaders, mapping key levels, confirming volume and breadth, and defining clear invalidation points before the opening bell. Position sizing, hard stops, and avoiding thin liquidity are crucial for controlling slippage and overnight risk. Gap trading can be applied to stocks, ETFs, futures, and forex on intraday or swing timeframes. Used with discipline and a robust plan, it can turn volatility into structured, repeatable opportunities.

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