Gap Trading Strategies Guide
The market doesn’t sleep, but sometimes it skips a beat. That’s where gap trading comes in.
If you’ve ever watched the chart open after a weekend or major news and seen price jump way above or below the last close, you’ve seen a gap. For serious traders, these moments can create clear trade setups with fast potential. But without a solid plan, gaps can chew through your balance just as fast.
What Is Gap Trading in Futures?
A gap is when the price of a futures contract opens at a different level than where it last closed, with no trading in between. It’s like the market hit fast-forward. These gaps usually happen after a break in trading hours—like a weekend—or when major news drops outside of regular sessions.
Futures markets trade nearly 24 hours a day, five days a week. That’s why big gaps are more likely at the Sunday evening open or after scheduled trading halts during holidays or news events. For example, if crude oil closes at $72 on Friday and opens at $68 on Sunday night after OPEC headlines, that $4 move is a gap down.
Gap trading strategies are built around two ideas:
Gap and Go – The price keeps moving in the same direction as the gap.
Gap Fade – The price returns to the last close and fills the gap.
You don’t need to trade every gap. In fact, you shouldn’t. The key is knowing when a gap is worth trading—and how to do it without wrecking your account. We’ll break down both gap styles next and show how you might build them into your own playbook.
Two Core Gap Trading Approaches
When a gap shows up, your job is to decide what it’s telling you. Is the market about to run further in that direction—or did it overreact and get ahead of itself?
Most traders approach gaps in one of two ways: Gap and Go or Gap Fade. Both can work, but they require different mindsets and setups.
1. Gap and Go (Trend Continuation)
This is when price gaps up or down, and then keeps moving in the same direction. These gaps usually come from strong news or momentum—like an interest rate change, oil production cut, or surprising jobs data.
Traders who go with the gap are betting that others will pile in after the open, pushing price further. For example, if the E-mini S&P 500 gaps up 30 points on a Sunday night after bullish economic news, a Gap and Go trader might go long right away and ride the momentum.
Why it works:
Strong news often brings follow-through.
Other traders reacting to the news can add fuel to the move.
Quick setups with clear entries and exits.
Risks:
If the news was already priced in, the move can stall or reverse.
Jumping in too early without confirmation can get you caught in a fakeout.
What to look for:
Clean gap with volume support.
No signs of immediate rejection or hesitation after the open.
Breakout from a key level (not just a random jump).
2. Gap Fade (Reversion to the Mean)
In this approach, the trader believes the market overreacted and the price will return to the previous close. Gaps often fill—especially when the initial move lacks strength or is based on emotion.
Let’s say crude oil gaps down $3 on Sunday night, but there’s no real follow-through. Buyers step in, price creeps back up, and by the U.S. open it’s near Friday’s close. A Gap Fade trader would short the spike (or go long on a drop) and ride it back toward the old price.
Why it works:
Markets often correct overreactions.
Many gaps get filled—especially if there’s no new trend behind them.
Risks:
Sometimes the market doesn’t fade—it keeps running.
Fading too early can lead to heavy drawdown if momentum builds against you.
What to look for:
Weak volume after the gap.
Quick hesitation or rejection at the open.
No strong catalyst backing the move.
How to Trade Gaps at the Open
Gap trades often set up in the first 15–30 minutes of the session. That’s when the market shows its hand—whether it wants to continue or reverse. Your job is to read the reaction and wait for confirmation before you jump in.
Here’s a step-by-step way to approach gap trading:
1. Wait for the Open Reaction
Let the first few bars print. This is not the time to guess. Watch how price reacts to the gap. Is it getting accepted? Is it pulling back? This tells you if you're looking at a continuation or a potential fade.
2. Mark Key Levels
Draw lines at the previous session’s close, high/low, and the gap open price. These levels are magnets. Many traders set stops and targets around them, and they can help you frame your trade.
3. Watch Volume and Price Action
If price is grinding up with low volume, it might not hold. But if it breaks out fast on strong volume, you may be looking at a real move. Use this info to lean toward a Gap and Go or Gap Fade plan.
4. Set Tight Risk Controls
Gap trades move fast. Set your stop before you enter. Stick to BluSky’s guidelines if you’re in an evaluation or BluLive account. That means protecting your trailing drawdown, and never risking more than you can make back in one good trade.
5. Use the Right Tools
Platforms like NinjaTrader or Tradovate—which come free with your BluSky account—let you move quickly and mark your levels easily. Set hotkeys, pre-load orders, and plan the trade before the bell rings.
Risk Management for Gap Trading
Fast setups call for faster discipline. Gap trades might offer clean entries, but they also come with sharp reversals and heavy volatility. That’s why risk management isn’t optional—it’s the first decision you make, not the last.
Here’s how to protect your account while trading gaps:
1. Always Use a Stop-Loss
You need a clear exit point before you enter. Gaps can reverse quickly, and if you’re stuck without a stop, one trade can blow your whole day—or worse, your account. Don’t “watch and hope.” Set the stop and walk away if it hits.
2. Respect BluSky Drawdown Rules
In your evaluation, your trailing drawdown moves up with your balance but never moves back down. That means one big loss can sink your shot at getting funded. In BluLive or Brokerage, you’ll have a static minimum balance, and dropping below it ends your run. Plan your risk accordingly.
Example: If your 50K evaluation has a $2,000 trailing drawdown, and your high-water mark is $50,500, you can't let your account drop below $48,500. Gap trading without a stop could bring you below that in a single trade.
3. Start Small
Don’t size like you’ve already won. Gap trades can feel like “easy money,” but they’ll punish you fast if you’re wrong. Especially at the Sunday open or during news, keep your contract size tight until you see a pattern that works for you consistently.
4. Don’t Trade Just to Trade
If the setup isn’t clean, skip it. Some of the best gap trades don’t come every week. Be selective, not reactive. If there’s no clear direction or no volume to back it up, sit on your hands. Your job isn’t to be active—it’s to protect capital.
Common Mistakes to Avoid
Gap trading looks simple on the surface, but it’s one of the fastest ways to get humbled if you’re not careful. Here are some of the most common mistakes we see—especially from traders trying to rush their way through an evaluation:
1. Jumping In Without Confirmation
Don’t just hit buy or sell because you see a gap. Wait for the market to show its direction. Let the first few bars print. You need proof that the move has strength—or signs that it’s fading. Without confirmation, you’re just guessing.
2. Ignoring News and Context
Always know why the market is gapping. A strong move backed by real news is very different from a random spike on light volume. If you’re not sure what’s driving the price, you have no edge. Check the calendar. Look at the headlines. Then trade.
3. Oversizing on Hype
Just because a gap looks “obvious” doesn’t mean it’s safe. New traders often double their size because they “feel confident.” That usually ends with a broken rule and a reset fee. Stay small. Live to trade another day.
4. Trading Low Liquidity Gaps
Thin markets can create fake gaps that move wildly before the real session even begins. Be extra cautious during the Sunday night open or on holidays. If volume is weak, wait until more traders show up.
5. Treating Every Gap the Same
Some gaps should be faded. Some should be followed. There’s no one-size-fits-all. You’ve got to build pattern recognition, track what works for you, and journal your results. Over time, you’ll learn which gaps fit your style.
Gaps offer opportunity—but only to the trader who’s ready for them.
Whether you’re in your evaluation, building your buffer in BluLive, or trading real capital in the brokerage account, the goal is the same: follow your rules, manage your risk, and let the best setups come to you.
At BluSky, we’ve built a program that gives traders the tools they need—real funding, same-day activation, no setup fees, and daily payouts when you hit your targets. But we can’t make your decisions for you. That’s on you.
Gap trades are never guaranteed. They require judgment, planning, and discipline. But if you learn to read the open and act with precision, they can become a reliable part of your toolkit.
Ready to see if your plan holds up in live conditions?
Start your evaluation today and put your strategy to the test.
