How To Trade Gaps At Opening For Intraday Profit?

Previously also I have written that intraday gap trading is a serious online business and gaps can be traded with 80%-85% accuracy on intraday basis. The best part of the gap trading is that you can open a trade right at the market open, so no need to time the market. In this post I will discuss how to trade gaps at opening for a serious intraday profit.

What is a gap. GAP = Today’s Open minus Yesterday’s Close. In our earlier post on gap trading we have introduced the gap zone concept. Watch the image below carefully to understand what is gap zone.

Gap Zones

Uderstanding Gap Zones

What Is Gap Zone?

  • If yesterday was an UP day and today market opens above yesterday’s close (i.e, gap up), then there is 85% of chance that the gap will be filled today.
  • If yesterday was a DOWN day and today market opens below yesterday’s close (i.e, gap down), then there is 85% of chance that the gap will be filled today.
  • If yesterday was an UP day and today market opens between yesterday’s open and close (i.e, gap down), then there is 75% of chance that the gap will be filled today.
  • If yesterday was a DOWN day and today market opens between yesterday’s open and close (i.e, gap up), then there is 75% of chance that the gap will be filled today.

How To Trade Gaps At Opening?

  • We will go with the 85% accurate rules of gap trading.
  • Look for a stock or index with a strong UP day yesterday. If it opens gap up today, short sell at open. First target 50% of gap and final target full gap fill or gap fade.
  • Look for a stock or index with a strong DOWN day yesterday. If it opens gap down today, buy at open. First target 50% of gap and final target full gap fill or gap fade.
  • The stop loss can be at your discretion. If you have a 1% gap, your SL should be at least 0.5%. Hence the more the gap size the more the chance of profit. Let’s check with an example of how to trade gaps at opening.
  • You can find stocks or indices with more than 1% gap in our NSE stock screener page.

Example Of Gap Fading:
On 16th August, 2017 Nifty had strong rally throughout the day and closed UP at 9897.30. Check the end of day chart of Nifty index below.

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Nifty End Of Day Charts

So it was an UP day. Next day, i.e, 17th of August, 2017 Nifty opened gap up at 9945.55. So it was a gap up of 9945.55 – 9897.30 = 48.25 points. As per the rule, yesterday was a strong UP day and today is again gap up, so we short sold Nifty index in either future or bought puts.

Intraday Profit

Gap Filled On Intraday Charts

Check the image above how the gap got filled before 11:30AM. A net profit of 48.25 points or an intraday profit of 48.25 x 75 = Rs. 3618.75 per lot size of 75 in Nifty. This was a typical example of how to trade gaps at opening. You can also try buying the stocks at open on gap down after a strong DOWN day. I will be happy to answer your comments in this regard.

Indrajit is a professional blogger and trading system developer. Amibroker expert, WordPress expert, SEO expert and stock market analyst.Trading since 2002, he has started the journey of StockManiacs.net on 2008. He follows Indian and world stock markets closely.



Categories: Trading Strategy

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3 replies

  1. Hi this Is very interesting. Thank you very much. One of your earlier strategy you have mentioned not to trade , if the stock opens above or below R1 or S

  2. Hi this Is very interesting. Thank you very much. One of your earlier strategy you have mentioned not to trade , if the stock opens above or below R1 or S1 of Previous day Pivot, Shall I chose not to trade in that ?

    Is this applies here as well ?

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