Gap and Go vs Gap and Fade: Reading the Open

Gap and Go vs Gap and Fade: Reading the Open

The market gaps up 1% overnight. Do you buy the momentum or fade the move? This decision defines your first trade of the day. Get it wrong and you start in a hole. Get it right and you set the tone for the session.

What Is a Gap?

A gap is the difference between yesterday's close and today's open. Gap up: today opens higher. Gap down: today opens lower. Gaps occur because of overnight news, earnings, economic data, or institutional positioning.

Gap and Go: When to Trade With the Gap

Gap and Go works when the gap has a catalyst behind it and institutional participation confirms the direction. The key signals: RVOL above 1.5 in the first 15 minutes, price holds above VWAP after the open, the gap is more than 0.5% but less than 2%, and there's a clear news catalyst.

Entry: Wait for the first 15-minute candle to close. If price is above VWAP and RVOL confirms, enter long on a pullback to VWAP. Stop below the opening range low. Target: 2:1 minimum.

Gap and Fade: When to Trade Against the Gap

Gap and Fade works when the gap is emotional, not institutional. Retail traders chase overnight moves. Institutions use the liquidity to exit positions. The gap fills. Key signals: RVOL below 1.0, price immediately rejects the gap direction, no clear catalyst, and the gap is into a prior resistance or support level.

Entry: Wait for price to break below VWAP (for gap up fade) or above VWAP (for gap down fade). Enter on the VWAP break with a stop above the gap high. Target: 50-80% gap fill.

The Decision Framework

Before the open, answer three questions. Is there a catalyst? If yes, lean Gap and Go. Is RVOL above 1.2 at 15 minutes? If yes, lean Gap and Go. Is the gap into a prior level? If yes, lean Fade.

If the answers conflict, sit out. The best gap trades are the ones where all three filters agree. When they don't, the probability drops and the chop increases.

Common Gap Mistakes

Trading before the first 15 minutes are complete. Fading a gap with high RVOL. Chasing a gap without a pullback entry. Not having a max loss for gap plays. The gap open is the most emotional time of the trading day. Your job is to be mechanical when everyone else is emotional.

Free Resource: Get the Snapback Strategy Playbook — The exact entry, stop, and target framework our traders use daily.

Mahalo for reading and trade well!

— Glenn & Reid | Hawai'i Trading Academy