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Gap trading has always been one of those strategies where the setup looks obvious — until it isn’t.
I’ve traded gap fills for years now, and I can tell you the biggest mistake most traders make: They jump in too early. They see a stock gap down hard, assume it’s an overreaction, and start buying immediately.
That’s not how I do it.
I wait for confirmation. And that confirmation comes from one simple rule: I don’t enter until I get a close above the high of the gap day’s tail.
Let me walk you through how this works — and why it matters.
The Entry Rule That Changes Everything
When I’m scanning for these opportunities, I’m primarily focused on upside gaps — meaning stocks that gapped down and I’m looking to fill that gap higher. The strategy works both directions, but I’ve had far more success trading upward gap fills.
Here’s the key: I don’t enter on the gap day itself. I wait.
Take Hewlett Packard (HPE) as an example. It gapped down, and I was interested in seeing if the stock could move from the high of the gap day’s tail to the low of the tail from the day before the gap. If you’re more aggressive, you can trade body-to-body instead.
But the entry? That didn’t come until Friday, when HPE closed above the gap day’s high. That’s when the setup became valid. My target was around $24.75 — the lower end of the tail from the day before the gap.
This single filter rule has kept me out of more bad trades than I can count.
When the Setup Doesn’t Trigger — and Why That’s a Good Thing
Let me show you where this rule really proved its value.
Texas Instruments (TXN) gapped down. The next day, it broke higher — but the close wasn’t above the gap day’s high price. No entry.
The day after that? Still no entry. And the day after that? Nope.
That filter saved me from what turned into a losing trade.
But here’s where it gets interesting. TXN had another gap down later. Again, no entry the next day. But the following day, it closed above the high price of the gap down day. That triggered a valid entry.
And sure enough, it filled the gap the next morning.
Same stock. Different gap. One setup triggered, one didn’t. The rule kept me out of the loser and got me into the winner.
That’s the power of waiting for confirmation.
For larger gaps, like Molina Healthcare (MOH), I’ll trade for a half gap — just trying to capture halfway back instead of the full fill. And depending on the setup, I’ll use either the underlying stock or call spreads.
The point is this: selectivity matters. Even when multiple setups look valid, I choose the one with the cleaner trend and better chart structure. That’s why I picked HPE over MOH in this recent scan.
Gap fills can be profitable, but only if you’re disciplined enough to wait for the right entry. Don’t chase the gap. Wait for the close above the high. Let the setup prove itself before you put capital at risk.
Graham Lindman
Graham Lindman Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
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We develop tools and strategies to the best of our ability but no one can guarantee the future. There is always a risk of loss when trading. Past Performance is not indicative of future results. What you will see today are some of the best examples from the public trades that utilizes this underlying method. From 7/2025 through 10/2025 the win rate was 84.4% with a 41% average winner and 23% average net return of winners and losers over a 1 day average hold time.
