Gap Up

A gap up means the session opens higher than the reference you named. Be precise, because the two common definitions are different. A full gap up opens above the prior high, so the ranges do not overlap. A partial gap, or an up open, opens above the prior close but inside the prior range. Only the full gap leaves an untraded hole above the prior high. The partial version is often just a strong open. In either case the gap is bullish only as a location. It says the auction started higher. It does not say the session will close higher. A gap up into resistance that sells off is a common reversal day. A gap up that holds and trends is a common trend day. The open itself is not the classification.

Mark whether the open is above the prior high or only above the close. Mark the nearby daily level. Then let the opening range form. Holding above the open, and above VWAP, favours continuation. Losing the open and filling toward the prior close favours the fade. Volume matters. A gap up on huge relative volume that immediately reverses is a climax. A gap up on solid volume that builds a base above the open is acceptance of the new prices. You are reading acceptance, not the fact of the gap.

The continuation long is a gap up with the daily trend, above the prior high, that holds the opening range and breaks up. Stop under the opening range or under the open. Do not chase if the break has already consumed the room to the next daily level. The better trade is sometimes no trade. A gap that has done the day's range in the first five minutes is not an invitation. It is a day that has already happened.

The fade is a gap up into a known supply level that fails back through the opening range. Target the gap fill, the prior close or the prior high, and do not demand a collapse beyond it. If the opening range breaks upward, the fade is invalid. Stand aside. Shorting a gap up in a strong bull trend, with no level and no failure, is not a strategy. It is a preference for lower prices.

Treating every green open as a gap up. Also assuming the untraded zone must be filled before any long is allowed. Breakaway gaps exist, and requiring a fill will keep you out of the trends that start with them. And buying the exact open print, before any evidence of acceptance, because the gap "is strength."

The open print can be a thin auction, especially in the first seconds, and it can be revised in your data. A gap up on one feed may not match another if the official open is still being set. And a gap up caused by a corporate action, a split or a dividend, is not a trading gap. Adjust the data or you will trade a fiction.