What is the gap and go strategy?
Gap and go is a momentum setup built on one idea: a stock that gaps up on real news, with heavy volume, can keep moving in the direction of its gap after the open. Traders who use it find those stocks in the premarket, mark a few levels, and try to join the move once the stock shows it is going, usually in the first minutes after 09:30 ET.
The name describes the trade: the stock gaps, and then it goes. When it doesn't go, and drifts back toward the previous close instead, traders call it a gap fill, or a fade. Telling the two apart early is most of the skill.
For small caps, gap and go is popular because the moves can be large and quick. It is also unforgiving: the speed that makes a good open exciting makes a bad one expensive. That is why this guide spends as long on risk and on what goes wrong as on the entry.
A quick word on terms. A gap is measured from the previous close to the session's first trade, from 04:00 ET. How far the stock has moved since that first trade is its % change, from that open.
How traders pick a gap and go candidate: catalyst, gap size, RVOL, float
Most gap and go traders start from a premarket scan and cut it down to a few names; the premarket gap scanner guide covers the settings. What they look for in a candidate:
- A catalyst. News that explains the gap: earnings, a contract, a trial result, a filing. A gap with no clear reason is often the first to fade.
- Gap size. Large enough to matter, commonly 10% or more for small caps, but not so large that the stock has made its whole move before the open.
- RVOL. Relative volume well above normal for the time of day, commonly 2 or more and often much higher on the busiest names; the guide to relative volume explains how it is measured and why early premarket readings swing.
- Float. A limited supply of shares, often under 10 to 20 million, so that demand can move the price.
- Premarket volume. Enough shares already traded that the stock will be liquid at the open.
- A clean chart. Room above the premarket high before the next obvious level on the daily chart.
Traderly's scanner has these as filters: Gapped up %, Price, Traded today, Relative volume (RVOL) and Float. Its market data is delayed 15 minutes, so it is a tool for building your list before the open and for reviewing the open afterwards in replay, not for timing an entry as it happens.
The premarket high and low as levels
Before the open, gap and go traders mark a few prices on the chart of each candidate:
- The premarket high: the highest price traded since 04:00 ET. Most gap and go entries are built around it. A stock that trades through it after the open is making a new high for the day.
- The premarket low: the lowest price of the premarket. A stock that falls under it after the open has given back the whole premarket move.
- The previous close: where the gap started. A stock that falls back to it has filled its gap.
- Daily levels: recent highs on the daily chart above the premarket high, where sellers may be waiting.
An illustrative example, with made-up numbers: stock A closed at 2.50 dollars yesterday. Its first trade today, at 06:45 ET, was at 3.00, a gap of 20%. During the premarket it traded as high as 3.45 and as low as 2.90, and at 09:25 ET it sits at 3.30, up 10% since its open. Its levels for the open are 3.45 (the premarket high), 2.90 (the premarket low) and 2.50 (the previous close).
The levels give the open a structure. Above 3.45, stock A is doing what a gap and go trader hopes for. Between 2.90 and 3.45, it is undecided. Under 2.90, the setup traders were watching is gone.
Entry and risk rules traders commonly use (described, not prescribed)
What follows describes what many gap and go traders do. It is not a recommendation, and each rule has many variations; the point of practicing is to find out which version you can actually follow.
Entries
- The break of the premarket high. The most common entry: buying when the stock trades above its premarket high after 09:30 ET, often only if volume rises as it breaks.
- The first pullback. Waiting for the first push up after the open, then a pullback that holds above a level, such as the premarket high or the VWAP, and entering when the stock turns up again. It is slower, and it misses the stocks that never pull back.
- The opening range break. Letting the first 1 or 5 minutes set a range, and entering on a break of its high.
Many traders also set a time limit: if the setup hasn't triggered in the first 15 to 30 minutes, they stop watching it.
Stops and size
- A stop under a level. Common choices are just under the premarket high after a breakout, on the idea that a real break should hold; under the low of the pullback; or under the opening range.
- A size set by the stop. Traders first decide how much they are willing to lose on the trade, then divide it by the distance to the stop. Willing to lose 50 dollars with a stop 25 cents away means 200 shares. A wider stop means fewer shares, not a bigger loss.
- A daily limit. Many traders stop for the day after a set loss, or after two or three losing trades in a row.
Exits
- Into strength. Selling part of the position on a quick move up, often at a round number or at the next daily level.
- On a lost level. Selling the rest if the stock falls back under the level the trade was built on.
In the example above, a trader using the first entry would wait for stock A to trade above 3.45 after the open, with a stop a little under it, at 3.30 say, and a size set so that a fall to 3.30 costs no more than they decided in advance. Whether that trade would have made money is the least interesting part. Whether they followed the rules they wrote is the question practice can answer.
Gap and go vs gap fill (or fade)
A gap fill is the opposite outcome: instead of extending its move, the stock drifts or drops back toward the previous close after the open. Traders also call a stock that sells off after its gap a fade, and some trade it on purpose, from the short side.
| Gap and go | Gap fill (fade) | |
|---|---|---|
| After the open | Trades above the premarket high and holds it | Stalls at or under the premarket high and falls back |
| Volume | Rises on the moves up | Rises on the moves down |
| Levels | The premarket high turns into support | The premarket low, then the previous close, become targets |
| Typical catalyst | Fresh, specific news | Weak, old or no news; a share offering |
Some signs that a candidate is turning from a gap and go into a fade, as traders commonly read them:
- It can't get through the premarket high in the first minutes, and each attempt comes on less volume.
- It loses the premarket low.
- The news turns out to be weaker than the headline, or a filing for a share offering appears.
Both outcomes are common, and the same stock can do one today and the other tomorrow. That is why gap and go traders spend as much care on the exit as on the entry.
Why win-rate claims mislead
You will see gap and go described with a win rate: the share of trades that made money. A win rate on its own says almost nothing, for three reasons.
It leaves out the size of the wins and the losses. A strategy that wins most of its trades can still lose money if its losses are several times larger than its wins. One that loses more often than it wins can still make money if its wins are much larger. What matters is the win rate together with the average win and the average loss.
It leaves out the sample. A handful of trades in a good month can show almost any number. Small caps behave differently from one month to the next: a month full of busy gappers and a quiet month don't look alike.
It leaves out the period and the rules. A figure measured with other entries, other stops or another market than yours doesn't describe what you would get.
That is why this guide gives no win rate for gap and go, and why your own log is the only record worth reading: your rules, your entries and exits, your wins and losses, over enough sessions to mean something. Building that record on past sessions, before any money is involved, is what the guide to practicing day trading is about.