Gap Trading might be your strategy if you are looking for a straightforward to execute strategy. Gaps can occur with all kinds of underlying values and with a wide range of timeframes. Two requirements must be met before opening a position – and this position should be closed during the same day to avoid overnight positions.
With gap trading, a trader follows stringent rules based on the opening price compared with the previous day’s price range. It is a day trading strategy where positions are permanently closed the same day, and orders will be canceled.
Start by finding the lows and highs of the previous trading day. You can easily retrieve this from our platform with a chart with candle sticks.
If the underlying value opens either above the previous high or under the previous low, there is a gap. But we want an extra signal before we open a position. If the gap is closed, coming in the price range of the previous trading day, we go into action.
This strategy aims for a substantial price movement of the underlying value after entering the previous range. The exact conditions for taking profit and taking loss can vary. For example, to put the stop loss at the opening price. Regarding taking profit, let the profits run until closing with short positions. And with long positions to take profit at two times the gap.
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