Notes from Webinar by Scott Andrews on Playing Opening Gaps

I just viewed a 2010 webinar recording given by Scott Andrews, titled Master the Gap Trades. Scott specializes in trading opening gaps, and was known as The Gap Guy (website He has a website offering paid services now at He has also published a book on gap trading here:

The strategy is pretty interesting, and is based purely on historical probabilities and proper risk management. Scott highlighted that he made more than 100% of his capital during the 2007 to 2009 period just by using this strategy.

I’ve noted some of the key points from the webinar below, as well as other interesting points from some of his posts:

Fading the gap is the easiest trade of the day

  • 72% of opening gaps in S&P 500 (at 9.30am) have retraced back to the prior day’s closing price (at 4.15pm) in the same day.
  • Works equally well in bull or bear markets.


  • Indices (S&P, Dow, Russell, Nasdaq) are ideal gap trading markets due to liquidity, reversion bias, and ease.
  • Indices are also not impacted by stock-specific factors.
  • Prefer the S&P E-mini futures (ES). While the SPY ETF is highly correlated, the futures are more liquid.


  • 4 criteria: Zone, Market Mood, Pattern, and Seasonality
  • Zone (see here)
    • Gap fade win % by where the following day opens
      • Prior day was down
        • Above High of prior day: 54%
        • Between Open and High of prior day: 61%
        • Between Open and Close: 74%
        • Between Close and Low: 83%
        • Below Low: 64%
      • Prior day was up
        • Above High of prior day: 65%
        • Between Close and High of prior day: 85%
        • Between Open and Close: 74%
        • Between Low and Open: 65%
        • Below Low: 48%
  • Size
    • Large gaps (> 40% of 5-day ATR) fill 50% of the time.
    • Small gaps (< 40% of 5-day ATR) fill 75% of the time.
  • Seasonality (see here)
    • Probability of gap fill by day of the week
      • Monday: 62%
      • Tuesday: 65%
      • Wednesday: 69%
      • Thursday: 71%
      • Friday: 72%
  • Pattern
    • Probability of gap fill the following day after an unfilled gap (i.e. consecutive gaps): ~74%.
    • 3 successively higher lows, followed by a gap up, win rate of ~84%.
    • 3 successively higher lows, followed by a gap down, win rate of ~73%.
    • Fading all gaps that opened inside the highs and lows of each of the prior 4 days, has a 50% win rate and negative profit factor.
    • Fading gaps that follow a doji day is not a good idea.
  • Market Mood
    • Shorting up gaps in a up market (i.e. above 200-day MA): Win rate 73.8%, profit factor 1.23
    • Going long down gaps in a up market: Win rate 71.9%, profit factor 0.94
    • Shorting up gaps during a down market (i.e. below 200-day MA): Win rate 67.6%, profit factor 0.87. This is because such up gaps tend to result in a trending day with short covering, and bargain hunters coming in.
    • Going long down gaps in a down market: Win rate: 70.3%, profit factor 1.05.
  • Do not fade gaps that open Below the Low of a prior Up Day (BLUD), because (i) stops may be triggered which leads to selling, and (ii) traders may short the market thinking that up trend attempt has failed.


  • Enter right at the open price with a market order to fade the open.
  • 30% of all gaps begin filling immediately after the open, and doesn’t go beyond 10% of the 5-day ATR.


  • Hold for gap fill (i.e. reverts back to prior day’s Close) or beyond (rarely scale out prior to fill).
  • Price often extends beyond the gap fill.


  • Using small stops does not improve profitability due to reduction in win rate.
  • Use a large enough stop to let probabilities work (baseline is ~30% of 5-day ATR)
  • 25% to 40% of 5-day ATR works well for most indices, Russell is more volatile and may require a larger stop.
  • That translates to 5-8 points in the S&P 500 E-mini futures (ES) and $0.50-$0.80 in the SPY.

Position Size

  • Generally risk 2-3% of capital
  • Willing to risk up to 4-8% if there is a really good setup.

Minimum Gap Size Required

  • 1 point on the S&P E-mini futures (equivalent to $50), or around $0.10 on the SPY, 87% of gaps meet this criteria.

Time It Takes for Gap to Fill

  • Most gaps fill within 1.5 hours to 2 hours.
  • Scott’s trades, on average, fill in slightly less than an hour.


  • Though gap fills have an extremely high win rate, profits from the winners barely exceed the losses from the losers.
  • From 1998 to 2009, total profits from winning trades / total losses from losing trades ~= 1.06.
  • Never hold a losing position overnight. 75% of gaps that do not fill in one session, do not fill in the following session.



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