Overnight gaps create high-opportunity, high-risk decision points at the open, and trading them becomes repeatable when you classify the gap type, confirm with volume/price action, and execute a clear continuation (“gap and go”) or mean-reversion (“gap fill”) plan with disciplined stops and sizing. The guide breaks down gap types, entry/exit frameworks, and key asymmetries (like SPY gap downs reversing more often than gap ups) to help traders avoid common mistakes and build a systematic gap-trading routine.
What Is an Overnight Price Gap in Trading?
An overnight price gap is when the open prints far from the prior close and leaves dead air on the chart.
Most of the time, it’s earnings, after-hours headlines, geopolitics, or a quick sentiment flip.
Overnight liquidity is thinner, so prices can jump levels without much trading in between.
Gap trading isn’t about the gap itself; it’s about what the price does after the open.
Does it keep pushing in the gap direction, or does it reject and work back into the void?
Backing trades with data you can use gaps to build clear trading plans or discover a trading edge:
A real example of this: SPY gap downs reverse about 52% of the time, while gap ups reverse closer to 35%.
You can see clearly Gap downs in SPY have a clear trading edge:
Those two data point alone change the whole trade idea: sizing, where you invalidate, and whether you’re hunting a fade or looking to press continuation.
How to Find the Best Gap Trade Entries
Most gap losses come from rushing the open.
Premarket gives you early clues where it’s trading, how wide the spreads are, and whether it’s holding levels or just whipping around.
At the bell, anchor the gap to real support/resistance.
For gap-ups, a clean trigger is often a break of the first-hour high with strong volume.
That’s the core of “gap and go”: you’re trading acceptance and continuation, not the headline.
For fades, you want the opposite: a big gap, then weak follow-through, failed pushes, and signs that the move is being sold into.
If it can’t hold above the gap area, the fill becomes a live target.
How to Trade Gap Fills: Rules and Setups
Gap-fill trading works when you treat it like a setup, not a slogan.
The basics:
Track the 20-day EMA as a common magnet on retraces (the claim here is ~60% of fills interact with it).
Read volume and volatility. A big gap with weak follow-through is a different trade than a big gap with sustained demand and tight spreads.
Label the gap type first. Fading a breakaway gap is how accounts get death-by-a-thousand-cuts.
Use hard invalidation beyond the gap zone/structure, not “I’ll see how it feels.”
Let price come to you near the gap boundaries. The middle of the gap is where you get chopped up.
Most bad gap fades come from trying to nail the turn too early. Confirmation beats being first.
When to Use Breakout vs. Reversal Gap Strategies
You don’t need one gap strategy; you need the right one for the tape.
Breakaway and continuation gaps generally fit breakout logic: hold above resistance, volume confirms, momentum stays aligned with the trend.
Give those trades room and don’t cut winners just because you’re up early.
Exhaustion gaps are different.
When they flip, they can unwind fast, so you’re trading a quicker mean-reversion move and managing it tighter.
Where to Place Stop Losses for Gap Trading
Stops don’t protect you overnight the way people think. If price gaps through your level, you’re filled wherever liquidity shows up.
That’s why you size for gap risk, not just what the chart “should” do.
For breakaway gap continuation trades, stops usually belong beyond a real swing point/level, so you don’t get shaken out by normal noise.
For the exhaustion gap to fade, invalidation is tighter because the entire thesis is “this move is failing right now.”
Risk/reward should match the gap type. Breakaway/runaway setups can justify wider targets (1:2 to 1:3) because they can trend.
Exhaustion fades usually need faster profit-taking and more conservative expectations (around 1:1.5) since the tape can whip both ways.
How to Plan Exits and Manage Risk in Gap Trading
Exits are where most traders donate profits back. Scale some out at planned levels, then use trailing stops for the runner if the move keeps going.
Watch for momentum deterioration like RSI divergence and failed retests those are often early warnings.
Let gap type drive the exit. Breakaway/runaway trades can justify wider stops and bigger targets.
Exhaustion fades usually need faster profit-taking because the bounce or flush can reverse again just as quickly.
How to Build a Repeatable Gap Trading Plan
A real gap plan gets decided before the open, not during the first five minutes.
Define which gaps you trade and which you ignore. Set entry rules tied to levels and volume, not vibes.
Hard-code position sizing and max loss so one ugly gap doesn’t wreck your week.
Premarket routine matters: mark key levels, note the catalyst, and map the likely paths (continue vs fill).
That’s how gaps go from random adrenaline to repeatable trades.
What Is a Gap Fill, and How Often Do Gaps Fill?
A gap fill is when the price trades back into the empty zone and repairs the chart.
“Gaps fill” is directionally true, but timing is where traders get trapped.
Some fill in minutes, some take weeks, and some never fill because the gap was a real breakaway, and the price never looks back.
Fill odds depend on the gap type.
Breakaway and runaway gaps fill less because they’re often real trend moves.
Exhaustion gaps fill more because they’re often the end of the move. And again, SPY stats show a skew: gap downs reverse about 52% vs 35% for gap ups.
Useful context, but the tape still decides that day.
How Volume, Volatility, and Liquidity Affect Gap Trades
High relative volume early supports continuation and lowers the odds of an immediate fill.
Low volume makes the gap feel hollow, which raises the odds it leaks back into the void.
OBV can help confirm whether accumulation/distribution matches the move.
Volatility should drive stop width. Tight stops in high-vol gaps get clipped constantly.
Premarket liquidity matters, especially in thinner names where prints can be misleading.
Best Indicators to Confirm Gap Momentum
Indicators work best as confirmation, not triggers. RSI helps spot stretched conditions (>70 overbought, <30 oversold), which is useful when you’re evaluating an exhaustion-style move.
MACD can help confirm whether momentum is actually expanding or rolling over.
Moving averages define the bigger trend, and VWAP is a solid intraday line for whether institutions are supporting the move.
Fibs can help map reaction zones, but treat them like areas, not laser levels.
The real improvement comes from stacking evidence: price action + volume + a couple of indicators that agree.
One-signal gap trades are where false moves eat you alive.
Best Candlestick Patterns for Gap Trading
Candles matter in gaps because they show acceptance vs rejection.
Patterns like a cup-with-handle or tight consolidation can support a real breakaway, especially when the gap clears a level that’s been defended for weeks.
The first 30 minutes usually tell you what you need to know: does it hold above/below the key level, or does it snap back?
Watch how price reacts around the 50-day and 200-day moving averages and major horizontal levels, gaps that fail there often turn into fills.
Most Common Gap Trading Mistakes to Avoid
Chasing late into exhaustion gaps.
Ignoring volume and treating a thin gap like a real breakout.
Overtrading every gap on your scanner.
Jumping in before confirmation (especially before key candles close).
Going off-plan once the position moves against you.
Holding through earnings without explicitly pricing the gap risk.
Oversizing because “it looks obvious.”
Fighting the trend in a high-vol tape.
Gap trading pays when you’re strict: define invalidation, size correctly, and don’t negotiate with the chart.
What Makes Gap Trading Consistently Profitable?
Consistent gap trading comes down to a few things: label the gap correctly, understand the catalyst, and then execute without freelancing.
Breakaway gaps can start real trends.
Runaway gaps can be add spots in strong moves.
Exhaustion gaps can set up the best fades, but only if you wait for failure signals instead of trying to call the top.
Then it’s risk management: stops where the thesis is wrong, sizing that respects volatility and overnight gap risk, and exits that match the gap you’re trading.
The traders who win aren’t the ones who predict every gap; they’re the ones who manage the gaps they choose to trade.
Why Do Overnight Gaps Happen?
Gaps form because the price keeps moving when the main session is closed.
Earnings are the biggest driver since results usually hit outside regular hours and the market reprices immediately.
JNJ on January 21, 2026, is a clean example of earnings premarket, big reaction, and the open prints at a new level.
When results don’t match what was priced in, you’ll see aggressive repositioning in premarket, and the gap basically gets “built” before the bell.
Other catalysts do the same thing: regulators, lawsuits, M&A, geopolitical shocks.
The core idea is simple: a gap is repricing without the normal liquidity and structure of the day session.
How to Use Earnings and News Catalysts in Gap Trading
Scan the earnings calendar ahead of time so you’re not surprised by volatility.
Track how a ticker typically behaves.
Some names trend clean after earnings, others snap back and chop all day.
Headlines alone aren’t a setup.
Use the news to understand why the gap exists, then use price/volume to decide whether the market is accepting that repricing or fading it.
Better premarket data in 2026 helps, but it still doesn’t replace confirmation.
What Are the Main Types of Price Gaps?
Gap Up vs. Gap Down: What’s the Difference?
A gap up is the open above the prior close, usually bullish, repricing off overnight info.
A gap down is the open below the prior close, usually a bearish repricing.
The edge is figuring out if the gap is real acceptance (trend) or just noise that mean-reverts.
Breakaway, Runaway, Exhaustion, and Common Gaps Explained
Gap Type | Position in Trend | Volume Characteristics | Fill Probability | Trading Approach |
|---|---|---|---|---|
Breakaway Gap | Trend initiation | High volume | Low (trend continuation likely) | Trade the breakout |
Runaway/Continuation Gap | Mid-trend | Moderate-High volume | Low (confirms momentum) | Follow existing position |
Exhaustion Gap | Trend termination | Very High volume | High (72% accuracy) | Prepare for reversal |
Common Gap | Range-bound markets | Low volume | Very High (often filled) | Fade the gap |
How to Identify Each Gap Type on a Chart
What Is a Breakaway Gap?
Breakaway gaps usually kick off the move.
They tend to rip through a major level with real participation behind it.
The low fill probability is the whole point. Price is leaving an area where supply and demand were balanced and revaluing fast.
If you’re fading these, you’re basically stepping in front of a freight train and hoping it taps the brakes.
What Is a Runaway (Continuation) Gap?
Runaway gaps show up mid-trend and usually come with solid participation.
They don’t fill often because the market is already trending, and this gap is fuel, not a fakeout.
The cleaner play is staying with the position, or adding on controlled pullbacks, instead of trying to pick the top tick.
What Is an Exhaustion Gap?
These are the “last push” gaps. Volume is often extreme, and the odds of a retracement jump one data point referenced here is a 72% fill rate.
You’ll often see late buyers or late sellers chasing, while stronger hands use the panic to unload into liquidity.
When that demand dries up, reversals can follow fast.
This is where tight invalidation and quick decision-making actually matter.
What Is a Common Gap?
Common gaps happen in chop sideways ranges, low volume, and no structural changes.
They fill a lot because there’s no real trend pressure behind them.
Good for mean reversion, bad for “new bull trend starts today” storytelling.
Once you label the gap correctly, decisions get cleaner: press the ones that are likely to run, fade the ones that are likely to mean-revert, and skip the coin-flip middle ground.
What’s Next for Gap Trading in 2026 and Beyond?
Gaps aren’t just a “technical pattern” anymore.
Premarket liquidity is better than it used to be, so a lot of price discovery happens before the bell.
You can usually see the key levels and who’s defending what early.
Also, DTCC Phase 2 (June 28, 2026) pushes the market toward more continuous clearing.
If 24-hour venues keep gaining share, the “overnight vacuum” shrinks, and classic clean gaps should show up less often or get messier and more pre-filled.
For now, gap mechanics still matter for active traders and system builders. Just don’t assume the 2021 playbook works the same way in a shifting microstructure.
How Do You Turn Gap Setups into Measurable, Repeatable Results?
Because gap trading depends on context—gap type, catalyst, volume, liquidity, and whether price accepts or rejects the new level—the fastest way to improve is to measure how your rules perform across many opens. A trading journal helps you separate “felt right” entries from setups that actually produce consistent outcomes, especially when you tag trades by breakaway vs exhaustion, note premarket conditions, and record where invalidation and exits were placed. Over time, reviewing screenshots and statistics can highlight patterns like chasing the open, using stops that don’t match volatility, or taking profits too early on continuation gaps. If you want a structured way to log these details and monitor PnL, drawdowns, and setup metrics in one place, using a Rizetrade trading journal and performance analytics dashboard can make the feedback loop clearer without changing the core strategy described above.