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Gap Up Strategies

Master the "Overnight News Catalyst." Learn how to trade the volatility of a gap up and choose between momentum continuation or mean reversion.

News Driven Volatility Trading Momentum vs. Reversion Advanced

What is a Gap Up?

Institutional Repricing

A gap up happens when the opening price of an asset is significantly higher than the previous day's closing price. This usually occurs due to positive news (earnings, product announcements, etc.) overnight. It represents an institutional "re-pricing" of the asset, and as a trader, your task is to determine if that repricing has further momentum or if it was an overreaction.

Two Ways to Trade Gaps

Momentum vs. Reversion

Gap-and-Go (Continuation): If the gap up holds its opening level and breaks the opening range high with high volume, it signals powerful institutional momentum. You go long and ride the trend.
Gap Fill (Reversion): If the price fails to hold the opening range and dips back below the opening level, it suggests the market believes the news was "priced in" and overvalued. Price will often move back to "fill the gap" (revert to the previous close).

Frequently Asked Questions

How do I filter out bad gaps?

Check the "Gap Size." Extremely large gaps (e.g., +10% or more) are often exhausted moves where everyone who wanted to buy has already bought. Moderate gaps (2–5%) are often the best for "Gap-and-Go" trades.

Should I trade a Gap Up without news?

Be very careful. Gaps without news are often just volatility spikes or market noise. News-backed gaps have the fundamental conviction required for high-probability setups.