The Gap and Go is one of the most popular day trading strategies, focusing on stocks that gap up or down significantly at market open. When a stock gaps with momentum and follows through in the gap direction, it can offer explosive profit opportunities. This guide covers everything you need to know to trade gaps successfully.
What is a Gap?
A gap occurs when a stock's opening price is significantly different from its previous closing price. This creates a literal "gap" on the chart where no trading occurred.
- Gap up: Stock opens higher than the previous close
- Gap down: Stock opens lower than the previous close
- Full gap: Opens above the previous high (up) or below the previous low (down)
- Partial gap: Opens higher/lower than close but within the previous day's range
Gap and Go defined: The strategy involves buying stocks that gap up and show continued momentum in the direction of the gap, or shorting stocks that gap down and continue lower.
Why Stocks Gap
Understanding why a stock gaps helps predict whether it will follow through:
- Earnings surprises: Better or worse than expected results
- News catalysts: FDA approvals, contract wins, analyst upgrades
- Sector moves: Industry-wide news affecting all related stocks
- Market sentiment: Overnight futures moves affecting all stocks
- Short squeezes: Heavily shorted stocks gapping on covering
Finding Gap and Go Candidates
Use a premarket scanner to find potential Gap and Go trades. Look for:
Essential Criteria
- Gapping at least 4% from previous close
- Premarket volume of at least 100,000 shares
- Average daily volume above 500,000 shares
- Fresh news catalyst (earnings, FDA, contract)
- Price between $5 and $100 for manageable risk
Bonus Factors
- High short interest (potential squeeze)
- Low float (under 20 million shares)
- Breaking through key resistance level
- Sector showing relative strength
Example Scanner Criteria
- Price change: +5% to +50%
- Premarket volume: 200,000+
- Average volume: 1,000,000+
- Price: $10 - $80
- Has news within last 24 hours
Gap and Go Entry Strategies
1. First Pullback Entry
Wait for the stock to pull back after the initial gap and enter on the first higher low:
- Stock gaps up and runs in the first 5 minutes
- Wait for a pullback to form a higher low
- Enter when price breaks above the pullback high
- Stop-loss below the pullback low
2. VWAP Hold Entry
Use VWAP as your guide:
- Stock gaps up and trades above VWAP
- Wait for price to test VWAP
- Enter long when VWAP holds as support
- Stop-loss below VWAP
3. Opening Range Breakout
Combine gap trading with the opening range breakout:
- Identify the 15 or 30-minute opening range
- Enter on break above the range high
- Stop-loss below the range low or midpoint
- Target 1.5x to 2x the range
4. Premarket High Break
For aggressive traders:
- Identify the premarket high
- Enter when regular session breaks premarket high
- Requires quick execution and tight stops
- Best for strong catalysts with high volume
Gap Types and How to Trade Them
Continuation Gap
Stock is already in an uptrend and gaps up on news. These have the highest probability of follow-through:
- Trade with the trend
- Use pullbacks for entries
- Trail stops as trend continues
Breakaway Gap
Stock breaks out of a consolidation pattern with a gap. Strong signal for a new trend:
- Look for gaps above resistance
- Volume should be significantly above average
- Often leads to multi-day moves
Exhaustion Gap
Stock gaps after an extended move. These often reverse:
- Appears after a stock is already up 50%+
- Volume may be high but selling emerges
- Consider fading or avoiding entirely
Key distinction: Gaps with fresh fundamental news tend to follow through. Gaps without clear catalysts often fill. Always know WHY the stock is gapping.
Risk Management for Gap Trading
Gaps are volatile, requiring careful risk management:
Position Sizing
- Risk no more than 1% of account per trade
- Calculate size based on stop distance
- Reduce size for low-float, high-volatility names
Stop-Loss Placement
- Below the first pullback low
- Below VWAP for VWAP-based entries
- Below the opening range low
- Never more than 5% from entry
Profit Taking
- Take partial profits at 2:1 risk-reward
- Trail remaining position with 5-min candle lows
- Watch for exhaustion signs (shooting star, volume decline)
Trade Example
Stock XYZ gaps up 8% on earnings. Premarket high is $54.
- Entry: $54.25 on break of premarket high
- Stop: $52.50 below first 5-min candle low
- Risk: $1.75 per share
- Target 1: $57.75 (2:1 = $3.50 gain)
- Target 2: Trail with 9 EMA on 5-min chart
When NOT to Trade Gaps
Not every gap is a Gap and Go opportunity. Avoid these situations:
- No clear catalyst: Gaps without news often fade
- Extended market: When SPY is overbought, gaps have lower follow-through
- Low volume: Premarket volume under 50,000 suggests weak interest
- Wide spreads: Illiquid stocks have high slippage
- Gapping into resistance: Check for nearby resistance levels
- Exhaustion pattern: Third or fourth gap in a row often fails
Gap Fill vs. Gap and Go
Some gaps fill (return to the previous close) while others extend. How do you tell?
Gaps That Fill
- No specific company news
- Gap caused by sector or market movement
- Stock breaks below VWAP early
- Sellers step in at the open
Gaps That Extend
- Strong fundamental catalyst
- Holds above VWAP after first 30 minutes
- High volume confirms buyer interest
- Makes higher lows on pullbacks
Advanced Gap Trading Tips
- Watch the first 5 minutes: This tells you if buyers are in control
- Check relative strength: Stock should outperform SPY on gap days
- Note the float: Low float stocks move faster but are riskier
- Use level 2: Watch the bid/ask for order flow clues
- Have a plan before the open: Know your entry, stop, and target
- Do not chase: If you miss the initial move, wait for a pullback
Track Your Gap Trades
Pro Trader Dashboard identifies your gap trades and shows your win rate for Gap and Go setups. See which gap sizes and catalyst types work best for your trading style.
Summary
The Gap and Go strategy offers excellent profit potential when traded correctly. Focus on stocks gapping 5%+ on fundamental catalysts with strong premarket volume. Use pullbacks or VWAP holds for entries, maintain strict risk management, and respect the signs that distinguish continuation gaps from exhaustion gaps. With practice and proper execution, gap trading can become a core part of your day trading arsenal.
Enhance your gap trading with our guides to first hour trading and momentum trading setups.