Market gaps—when a stock opens significantly higher or lower than its previous close—are the bread and butter of professional day traders. They represent an imbalance in supply and demand that forces immediate price discovery.
But for every gap that runs +20%, three others will fade and trap amateur bulls.
At SignalPro, our algoritms process thousands of gaps daily. Here are the 3 non-negotiable rules we use to filter the noise.
Rule 1: The "Clean Air" Check (No Resistance)
Never trade a gap that opens directly into heavy overhead resistance. You want "Clean Air" to the left of the chart.
The Filter: Look at the Daily chart. Is there a major moving average (SMA 50, SMA 200) or a pivot high from last month blocking the path?
Trap Alert
If $AAPL gaps up to $185, but there is a massive supply zone at $186 from two weeks ago, the risk/reward is terrible. Avoid it.
Rule 2: Volume is the Fuel
A gap without volume is just a glitch. You need institutional participation to sustain a move.
The Filter: In the pre-market or first 5-minute bar, relative volume (RVol) must be > 2.0x.
- We want to see 200% of the normal volume for this time of day.
- SignalPro's "Gap Signals" dashboard automatically highlights stocks with RVol > 3.0x in yellow.
Rule 3: The Gap "Hold" (The First 15 Mins)
Amateurs buy at 9:30:00 AM. Professionals wait.
Smart money often unloads inventory into the initial spike. We want to see the stock hold the top third of its opening range.
The Strategy:
- Wait for the first 15-minute candle to close.
- If the price stays above the opening price (Open > Previous Close), the buyers are in control.
- Set your stop loss just below the low of the day (LOD).
Summary
- ✅ Clean Air: No resistance overhead.
- ✅ High Volume: RVol > 2.0x.
- ✅ Price Strength: Holds the gap in the first 15 mins.
Don't scan for these manually. That's slow and emotional.
Pro Tip
Use the Gap Signals Dashboard in SignalPro to instantly see only the stocks that meet these criteria. We filter out the low-volume noise for you.
