Best Intraday Gap Trading Strategies

Gap Trading Strategy

Gap trading primarily points out trading in stocks that have a price gap from the previous close to the opening price of the next day and can be executed without difficulty in online trading. Rising above a specific range specifies a buy, and falling below indicates a short.

Four types of gap patterns are recognized when a chart pattern is viewed.

Common Gap:

The variation in the price of the stocks can even be the outcome of a stock being confirmed ex-dividend when the trading volume is low. These gaps arise very frequently and get filled just as quickly as possible. Getting filled points out that the price goes back to the level before which the gap happened, also known as closing the hole, and therefore the common gap does not offer many trading opportunities.

 Breakaway Gap:

Before we recognize the Breakaway Gap, we must know the model of a congestion area which is the price range in which the market has traded for a particular time. When the price breaks out of this congestion area, it creates the occurrence known as a breakaway gap.

Runaway Gap:

Runaway gaps are known as measuring gaps also. These are a result of increased interest in stocks. It generally indicates traders who did not come in on the action when the price of a stock moved up and, instead of waiting for the price to drop again, choose that this is not going to occur and start buying the stock in large quantities so that the price gaps above the previous day’s close.

 Exhaustion Gap:

Gaps near the end of a good uptrend or downtrend are selected by the high volume traded and the evident price difference between the previous day’s close and the next day’s opening. They are only noticeable from Runaway Gaps in terms of the volume traded.

What Is A Gap Filling?

A Gap that has been filled means that the price has moved back to the level before the gap arises.

Filling Of A Gap Can Be Caused Due To:

a) Price patterns
b) Technical resistance
c) Irrational exuberance

This trading strategy must be applied with carefulness. Technical or fundamental factors that affect the BSE and NSE can lead to a gap. These strategies need to be used for trading with adequate research to earn profit.