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  • Writer's pictureTrader Stewie

Don't Chase A Gap Up! Wait for a Gap Fill!

Hi folks,

Today I wanted to share a day trading strategy that I like to use on markets or individual stocks that open with a gap up!

This strategy helps you avoid chasing BIG gap up opens and allows you to cut out the Fear of Missing Out (FOMO) that many traders experience during these types of scenarios! This strategy will teach you to wait for lower risk entries, potentially generating larger reward exits!

Just like with any other trading strategy patiently waiting and stalking a setup is a big part of the daily battle for many traders. So, do we do chase a gap up open!? Of course not!

I like to wait for the gap to fill!

Here is a step by step guide on trading a gap fill. Lets get started:

Each morning I send out a morning tweet to Art of Trading private community members, usually this includes a day trading idea for the day! I don't "officially" alert day trading setups because the pace in which some of these setups move is just too quick. Through Art of Trading education many Art of Trading members are confident in taking on these setups themselves and many members do just that!

We usually focus on Red to Green setups but I have a variety of other strategies that can produce consistent results too. One of these setups is day trading a gap fill!

This is how we day traded the $AEHR gap fill on September 14th 2023:

First thing Thursday morning I tweeted Art of Trading private members this:

This set the stage for the setup and put this day trading idea on the screens and radars of Art of Trading members!

So what's next? How do I go about trading this?

First DO NOT chase the gap up! Patiently wait for the gap to fill. There is always opportunity in the market and usually the best opportunities come with patience! Watch to see if the gap up open fades and creates a spot for support. Ideally this will be a fade back to flat or red followed by a tradeable level of support.

This is what the $AEHR chart looked like as it developed and traded that day:

Follow each step annotated on the chart to visualize the trade! Broken down below:

There are 5 basic steps to a gap fill trade:

Step 1 Patience!

A gap up open is a no go! wait to see if the stock can fade lower to fill the gap. Ideally this setup is done with strong up trending stocks. Not bearish looking stocks in a longer term downtrend!

Step 2 Entry

If the gap manages to fade after the open wait for the stock to establish a tradable level of support. Ideally you want to see the stock hold near flat or slightly red for at minimum 15 - 30 minutes. If support holds consider an entry near support!

Step 3 Stop Loss

You want to place the stop loss just under the low of the previous day which should also coincide with a lower level of support. Don't set the stop so tight that even just a penny will take it out! Give the trade room to breathe in this spot!

Step 4 Plan the Exit

Watch the stock closely near the high of the day and the high of the previous day. If these price points are 2, 3 or even 4 percent higher then the close on the previous day consider taking full or partial exits on the trade!

Step 5 Book Gains

If the stock makes a quick thrust higher followed by a move down start watching previous price points and be sure to book the rest if the stock starts to fade! Think - Hit and Run!!!

I tweeted updates on the trade as it developed through the day! I summed it up above here so you have a quick guide to reference the next time you consider taking on a trade like this on your own! $AEHR was an ideal gap fill day trade candidate and trade because the area of risk was quite narrow! Allowing you to size the trade larger with a tighter stop loss.

Here is another older example of this same strategy. In the case below the trade was sized SMALLER to compensate for the wider ranged stop loss!

So as you can see with this example since the entry is $17.40 and the stop loss is $16.10, you have to use Smaller size to compensate for the wider stop loss! This type of gap fill with a wider stop could also be managed as a swing trade if the stock was able to find momentum intra-day and close out strong!

I hope you found value in this educational walkthrough! In the future you can use this guide to apply it to your own strategy with confidence!

Be sure to check out the Art of Trading Blog ( ) and all that it has to offer! I've created an extensive catalog of real world trading techniques, strategies and reviews such as this one! The free educational content can add a lot to your trading tool box and make you a more confident trader!

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