Overnight Gap Fill Strategy: Trading the Open

Stocks gap at the open about 60–70% of the time. Not all gaps fill. The gap-fill strategy classifies the gap by size and context, then trades the high-probability fills during the first 30–90 minutes of the session.

Gap classification

A gap is the difference between yesterday's close and today's open. Classify by size relative to ATR(14):

• Small gap (< 0.3 ATR): high fill probability (~70%), low profit per fill. Marginal.
• Medium gap (0.3–0.8 ATR): the sweet spot. Fill probability 60–65%, meaningful range to capture.
• Large gap (> 1.0 ATR): low fill probability (~40%), often the start of a trend day. Avoid filling trades; consider fading only with confirmation.

The setup (gap-fill long)

1. Stock gaps down 0.3–0.8 ATR at the open.
2. First 5-minute candle holds above the gap low (no immediate continuation down).
3. Price begins retracing toward yesterday's close.
4. Enter on a break of the first 5-minute candle high, targeting yesterday's close (the fill).

The setup (gap-fill short)

Mirror image: gap up 0.3–0.8 ATR, first 5-min candle holds below gap high, enter on break of first 5-min low, target yesterday's close.

Stop and target

• Stop: beyond the gap extreme (gap low for longs, gap high for shorts) plus a small buffer. If price makes a new extreme, the gap is not filling — get out.
• Target 1: yesterday's close (full fill). Exit 70% here.
• Target 2: trail the remainder with a 5-minute low/high stop in case price runs through the close.
• R/R: minimum 1.5R. If the gap is small and the stop distance makes R/R under 1.5, skip.

Filters that improve fill odds

• Gap against the prior day's direction (down gap after an up day, or vice versa) fills more often — it is more likely profit-taking than a regime shift.
• No scheduled catalyst. Skip gaps on earnings days, FDA dates, or major news. Catalyst gaps are news-driven and trend rather than fill.
• Index alignment: gap-fill setups work best when the broad index (SPY) is flat to slightly off, not gapping aggressively itself.

Time stop

If the gap has not filled by 11:00 ET, exit at market. The fill edge is concentrated in the first 90 minutes; afternoon gaps that have not filled usually close unfilled or extend.