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Gap trading explained: why "gaps always fill" is a myth

A stock closes at 50 and opens at 53. Nothing traded in between. That empty space on the chart is a gap. Some traders bet it keeps going. Others bet it closes. Both get it wrong often.

Beginner guide · 8-minute read · Updated 2026-10-21

What a gap is

A Gap is an empty space between one candle and the next. Price jumped without trading in between.

• Gap up: today opens above yesterday's high.
• Gap down: today opens below yesterday's low.

Gaps are common in US stocks because the main session ends at 4:00 pm ET and starts again at 9:30 am ET. News that lands overnight shows up all at once at the open. Some of it is priced in during Pre-market and after-hours trading.

Futures and forex trade almost around the clock, so they gap mainly over the weekend.

Why gaps happen

• Earnings reports. Companies often report before the open or after the close. See Earnings report.
• Company news. Deals, guidance changes, legal rulings, analyst changes.
• Big economic data. CPI and the jobs report come out at 8:30 am ET, an hour before stocks open.
• Overseas markets. A big move in Asia or Europe overnight can set the tone.

A gap with real news behind it tends to behave differently from a gap with none.

The two main gap trades

Gap and go

The bet: the gap is the start of a move, and price will keep going the same way.

This idea fits best when:

• There's clear news behind the gap.
• The gap breaks through a level on the daily chart, like a long-standing ceiling.
• Volume is much higher than normal. See how to read volume.

Many traders use an opening range breakout on gap days to decide when to act.

Gap fill (fading the gap)

The bet: the gap was an overreaction, and price will move back to yesterday's close. That move back is called "filling" the gap.

This idea fits best when:

• There's little or no news behind the gap.
• The gap runs into an obvious level on the daily chart.
• The gap is small compared with the stock's usual daily range.

The "gaps always fill" myth

Here's the thing.

You'll hear "gaps always fill". It isn't true.

Some gaps fill the same day. Some fill weeks later. Some never fill. A stock that gaps up on a big change in its business can keep climbing and never see that price again.

The saying sticks because people remember the gaps that filled. They forget the ones that didn't.

Where gap trading fails

• Choosing the wrong type. A gap-fill trade against a news gap can run hard the wrong way.
• The open is chaotic. Spreads are wide, prices jump. Entries and exits fill at worse prices. See Slippage.
• Halts. A stock moving very fast can be paused. You can't get out while it's halted. See Trading halt.
• Holding overnight. A Stop loss can't protect you from tomorrow's gap. If tomorrow opens past your stop, you're filled at the open price, not your stop price.

The rules a beginner would write down

1. Type first: "Before the open, I write 'go' or 'fill' for each gap and why. News, levels, volume. If I can't decide, no trade."
2. Entry: "No trades in the first 15 minutes. For 'go', a 5-minute body closes past the opening range in the gap's direction. For 'fill', a body closes back through the opening range toward yesterday's close."
3. Stop: "Gap and go: just past the other side of the opening range. Gap fill: just past the day's extreme so far."
4. Target: "Gap fill: yesterday's close. Gap and go: at least 2 times my risk, or the next daily level. If the target is less than 1.5 times my risk away, I skip it."
5. Size and limit: "About 1% risk, sized with the position size calculator. One gap trade a day. Out by the close, no overnight holds."

A worked example in units

A stock closes at 50.00. No news. It opens at 51.20, right under an old ceiling at 51.50 on the daily chart. You write "fill".

• The first 15 minutes: high 51.60, low 51.00.
• At 9:50 a 5-minute body closes at 50.90, back below the range. Entry (short): 50.90.
• Stop just past the day's high: 51.70. Risk: 0.80 a share.
• Target: yesterday's close, 50.00. Reward: 0.90, about 1.1 times the risk.

That's below the 1.5 rule. No trade. The rule did its job: the room to the target was too small for the risk.

A math example, not a promise. Most of the value in written rules is the trades they keep you out of.

How to practice it on replay

1. Find stocks that gapped on past days. Earnings season gives plenty.
2. In TradingView bar replay, go back to the day before. Look at the daily chart and any news you can find. Write "go", "fill" or "pass".
3. Step to the open on a 5-minute chart. Follow your entry rule exactly.
4. Step forward to the stop, the target or the close.
5. Log every gap in your trading journal: the gap size, news yes/no, your call, and what actually happened.

After 30 gaps, check your calls. Were your "news" gaps more often "go"? That's worth knowing before real money.

Questions