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Gap up gap down strategy — how to trade the opening gap, types of gaps, and a complete guide to making morning profit, with examples.
Published by The Retail Trader · AUG 06, 2026 · Features
Gap up gap down strategy — how to trade the opening gap, types of gaps, and a complete guide to making morning profit, with examples.
Gap = when the opening price of a stock/index differs from the previous day's closing price. This difference (gap) gives a trading opportunity.
Types of gaps:
• Gap Up: Open > Previous Close (bullish gap)
• Gap Down: Open < Previous Close (bearish gap)
• Full Gap: Open > Previous High or < Previous Low (big gap)
• Partial Gap: Open between Previous High and Low (small gap)
Example:
• Previous day: Close 24,600, High 24,650, Low 24,550
• Today:
• Gap Up Full: Open 24,680 (above previous high)
• Gap Up Partial: Open 24,630 (above close, below high)
• Gap Down Partial: Open 24,570 (below close, above low)
• Gap Down Full: Open 24,520 (below previous low)
Keep these five points in mind:
• Overnight news — earnings, RBI policy, global events
• Global market impact — US markets closed, Asian markets opened gap up/down
• Corporate actions — dividends, splits, bonus announcements
• Sector news — government policy, regulatory changes
• Institutional orders — FII/DII overnight buying/selling
Setup:
• Stock gapped up (open > previous close)
• Let the first 15 min pass (9:15-9:30)
• If price pulls back towards the gap start (previous close) and bounces
• Entry: Bounce from previous close (support now)
• SL: Below previous close
• Target: Gap high (day's high)
Example:
• Reliance: Previous close ₹2,850
• Today opens at ₹2,890 (gap up)
• 9:30: Price pulls back to ₹2,855 (near previous close)
• 9:35: Bullish candle bounce from ₹2,855
• Entry: ₹2,860
• SL: ₹2,845 (below previous close)
• Target: ₹2,890 (gap high) = 1:2 R/R
Setup:
• Stock gapped down (open < previous close)
• Let the first 15 min pass
• If price rallies towards the gap start (previous close) and rejects
• Entry: Rejection from previous close (resistance now)
• SL: Above previous close
• Target: Gap low (day's low)
Setup:
• Strong gap up with high volume
• First 5 min candle is bullish (large body)
• Price continues in the gap direction
• Entry: 5-min candle break (above first 5-min high)
• SL: Below first 5-min low
• Target: 1:2 R/R from entry
Example:
• Nifty: Previous close 24,600
• Today opens at 24,700 (gap up, +100 points)
• 9:15-9:20: 5-min high 24,720, low 24,680
• 9:21: Price breaks 24,720 → Buy
• Entry: 24,722
• SL: 24,678 (5-min low)
• Target: 24,810 (1:2 R/R = 88 points)
Logic: ~70% of gaps fill during the day (price comes back to previous close).
Setup:
• Stock gapped up
• Wait for price to start coming down
• Target: previous close (gap fill)
• Entry: When price starts reversing (bearish candle on 5-min)
• SL: Day's high
• Target: Previous close (gap fill level)
Breakaway Gap:
• Gap at the start of a new trend
• High volume
• Gap NOT filled (gap stays as support/resistance)
• Trade: Follow the gap direction
Runaway Gap (Measuring Gap):
• Gap in the middle of a trend
• Moderate volume
• Trend continues after gap
• Trade: Follow trend, gap = trend confirmation
Exhaustion Gap:
• Gap at the end of a trend
• Low volume
• Gap fills quickly (price reverses)
• Trade: Counter-trend (gap fills = reversal)
How to Identify?:
• Breakaway: Gap + volume + new trend start + not filled
• Runaway: Gap + moderate volume + trend already established
• Exhaustion: Gap + low volume + trend already extended + fills quickly
Rule 1: First 15 Minutes = Observation:
• Opening volatility is very high
• Don't trade in the first 15 min
• Let the gap settle, let the first candle form
Rule 2: Volume Check:
• Gap + high volume = real gap (likely to continue)
• Gap + low volume = fake gap (likely to fill)
• Always check volume on the gap candle
Rule 3: Market Context:
• Nifty gapped up = individual stocks likely gap up
• Nifty gapped down = individual stocks likely gap down
• Don't trade a stock gap against the market gap
Rule 4: SL Non-Negotiable:
• Gap trades can reverse fast
• SL at gap edge (previous close/high/low)
• Don't widen SL after entry
Rule 5: Gap Size Matters:
• <0.5% gap = small gap = low opportunity
• 0.5-2% gap = sweet spot = good opportunity
• >3% gap = extreme gap = high risk, avoid or trade with caution
Mistake 1: Taking a Trade at the Open:
• Entering at 9:15 = highest risk
• Entering after 9:30 = safer, trend clearer
Mistake 2: Trading Every Gap:
• Not every gap is tradeable
• Low volume gaps = avoid
• 3%+ gaps = too extreme
Mistake 3: Trading Against the Gap Direction:
• Gap up → shorting = risky (momentum against you)
• Gap down → buying = risky (selling pressure)
• Follow the gap (until evidence of fill)
Mistake 4: Blindly Trading the Gap Fill:
• 70% of gaps fill = probability, not guarantee
• 30% of gaps don't fill = trap
• Wait for price action confirmation before a gap fill trade
Mistake 5: Without Market Context:
• Stock gaps up but Nifty gaps down = conflicting
• Don't trade an individual stock gap against the market direction
~70% of partial gaps fill during the day. Full gaps (above previous high/below previous low) fill less often (~50%).
Gap and Go (Strategy 3) — wait 15 min, enter on 5-min breakout, ride momentum. Simple and effective.
Both. Intraday: morning gap trades (9:30-11:00). Swing: breakaway gaps = hold for days/weeks.
Gap up → buy CE (momentum). Gap down → buy PE (momentum). ATM options best. Exit by 11:30 (theta).
theretailtrader.org/charting → 5-min chart → compare today's open with yesterday's close. Or check the daily chart for a visual gap. Pro: intraday 5-min candles available.
Practice gap trading on TRT: theretailtrader.org/charting Pro (intraday 5-min data): theretailtrader.org/pricing — ₹2,499/mo Telegram (morning gap alerts): @theretailtrader_in
Educational only. NOT investment advice. Intraday trading involves risk.
This article is for educational purposes only — no buy or sell recommendation, no claim of guaranteed returns, and no advisory. Rules, rates and mechanics are changed from time to time by the exchanges, SEBI and RBI, so verify every number yourself with your broker or the official source.