Finding the gap
Three consecutive candles where the first one’s wick and the third one’s wick leave a space that the middle candle covered on its own. That space is the gap. It only counts if the middle candle is large — a gap left by three small candles is noise, and marking every one of them fills the chart with lines that mean nothing.
With the trend, or not at all
The gap must point the same way as the higher timeframe. A bullish gap in an uptrend is a pullback into an area price left quickly on the way up, which is a coherent idea. A bullish gap inside a downtrend is a place where price fell back through on its way lower, and buying it is fighting the chart with extra vocabulary.
The entry
Price returns and trades into the gap. Enter in the upper half of a bullish gap rather than waiting for it to fill completely, because a good many gaps are only partly filled before the move resumes and waiting for the perfect fill is how the trade is missed. Better still if there is a rejection candle from inside the gap.
Stop and target
Below the whole gap for a long, above it for a short. If price closes cleanly through the far side, the fast move that made the gap has been fully undone and the reason for the trade is gone. Target the recent high the move came from, or the next structure point. The stop is naturally tight because a valid gap is a small area, which is where the reward-to-risk on this method comes from.
The word that ruins it
You will read that price must return to fill a gap. It is not true. Many gaps are never revisited, some are revisited weeks later, and a plan that skips the stop because the fill is guaranteed is the specific way this idea empties accounts. The strategy works as an entry technique in a trend you already identified. It does not work as a prediction of where price has to go.
In short
| Gap | Space between candle one and candle three |
|---|---|
| Valid if | The middle candle is large |
| Direction | With the higher timeframe only |
| Entry | Partial fill, not the full one |
| Invalid when | Price closes through the far side |
Common questions
Do all gaps get filled?
No. Many do, many do not, and the ones that do can take a very long time. Treat the fill as likely enough to trade with a stop and never as certain.
Which timeframe for the gap?
The same one you trade, with direction taken from the chart above it. Gaps exist on every timeframe, and a one-minute gap has about as much meaning as a one-minute anything.
What if the gap is very large?
Then the stop is very wide and the trade is probably not worth taking. A large gap is really a range, and it should be treated as one.
Trading forex and CFDs on margin carries a high level of risk. Most retail accounts lose money. Nothing on this page is financial advice or a recommendation to trade.