What is a Gap Fill?
Gap fills are a basic part of price action that can give you exciting opportunities in trading. Think of the gap in a chart as a "hole" in price, and filling the gap as filling that hole in the chart.
That hole gets filled when price moves all the way through the gap, to the closing level that marks the "start" of the gap. This may happen on the first day, second day, or much later.
When price only goes partly through the gap, say 50%, that's a partial gap fill.
How Often do Gaps Fill?
Gaps fill more often than most people think, but you have to crunch the numbers for a specific symbol to see how often gaps fill for that instrument. Fortunately for you, I've done that, and here's some cool data on QQQ gap fills.
For the following tables, I used historical data from the inception (first day of trading) of the QQQ Nasdaq ETF.
I calculated based on three gap sizes: 0.5% - 0.99%, 1% - 1.99%, and 2% or more.
For each of these, I calculated several gap fill percentages to see how often gaps fill. These include:
- Partial gap fill - 50% of the gap
- Partial gap fill - 80% of the gap
- Full gap fill
I also calculated these separately for the two gap directions. So, you have gap down statistics calculated separately from gap up statistics. As you'll see, direction does make a difference in how often gaps fill.
The first sets of data are based on a same-day gap fill. e.g., the stock gapped in the morning and the filled sometime during that trading day before the close.
Gap Fill Statistics Table - Down Gaps, Filled Same Day (QQQ)
GAP DOWN AMOUNT | Closed 50% or more | closed 80% or more | fully closed |
|---|---|---|---|
0.5% - 0.99 % | 78.06% | 67.01% | 59.35% |
1% - 1.99% | 67.99% | 54.39% | 46.74% |
2% or MORE | 70.31% | 45.31% | 28.91% |
Gap Fill Statistics Table - Up Gaps, Filled Same Day (QQQ)
GAP UP AMOUNT | Closed 50% or more | closed 80% or more | fully closed |
|---|---|---|---|
0.5% - 0.99 % | 72.04% | 59.82% | 53.45% |
1% - 1.99% | 65.55% | 52.70% | 44.73% |
2% or MORE | 51.37% | 41.78% | 32.88% |
Historical data source: Google Finance. Calculations performed by epicctrader.com using Google Sheets and formulas.
You can draw a few interesting conclusions from the data above, at least with regard to the QQQ ETF on Day 1 of a gap:
- Gaps down fill more often than gaps up.
- Small gaps (.5-.99%) down fill at least half the gap quite often: 78%. Almost 4 out of 5 times.
- Small gaps fill completely at a significant rate: Over 59%
- Large gaps down get partially filled at a significant rate: over 70%
But what happens when you give them just a little more time?
How Frequently Do Gaps Fill Within Two Days?
For this, I looked at how many gaps didn't fill on day 1, but did fill on day 2.
Then, I calculated how many gaps were filled within two days, regardless of whether they filled day 1 or day 2.
Gap Fill Statistics - Down Gaps, Day 2 (QQQ)
GAP DOWN AMOUNT | CLOSED fully on day 1 | CLOSED FULLY on DAY 2 | closed fully within 2 days |
|---|---|---|---|
0.5% - 0.99 % | 59.35% | 14.97% | 74.32% |
1% - 1.99% | 46.74% | 10.48% | 57.22% |
2% or MORE | 28.91% | 8.59% | 37.50% |
Gap Fill Statistics - Up Gaps, Day 2 (QQQ)
GAP UP AMOUNT | CLOSED fully on day 1 | CLOSED FULLY on DAY 2 | closed fully within 2 days |
|---|---|---|---|
0.5% - 0.99 % | 53.45% | 10.01% | 63.46% |
1% - 1.99% | 44.73% | 8.74% | 53.47% |
2% or MORE | 32.88% | 10.27% | 43.15% |
As you can see, giving a gap one more day to fill greatly increases the chances. You see the strongest effect with down gaps, where:
- 74.32% of gaps sized 0.5% to 0.99% closed within two days, compared to 59.35% on day 1.
- 57.22% of gaps sized 1% to 1.99% closed within two days, compared to 46.74% on day 1.
Let's look quickly at the source data for the above stats.
- QQQ first traded March 10, 1999, and that's when the data began.
- The historical data used goes through February 14, 2023.
- That's a total of 6005 trading days.
How Often Do Market Gaps Happen?
Throughout this historical period of 6005 trading days, the QQQ ETF saw:
- 2397 gaps, up or down, of over 0.5% = 39.92% of days
- 1022 gaps, up or down, of over 1% = 17.02% of days
- 274 gaps, up or down, of over 2% = 4.56% of days
Market Gaps Down Fill More Often Than Market Gaps Up
As you see in the statistics above with the Nasdaq QQQ ETF, market gaps down fill more often than market gaps up.
That assumes you're calling the Nasdaq, or the S&P 500, "the market", which most American traders do.
The tables above show this on a short-term timeframe - 1 Day. When you lengthen the timeframe, it becomes more significant. But, why?
Every time the market is at all-time highs, that means it has filled all the gaps down.
The broad market, historically, goes up over time. You continue to see it reach all-time-highs every few years or so.
This historical upward movement of markets means that gaps down fill more often than gaps up. At any given time, we could have zero unfilled gaps down, and dozens or hundreds of unfilled gaps up.
If the market went to zero, we'd fill all those gaps up. But, of course, if that happens, we won't be worried about gaps anymore. We'll probably be looking for new jobs, or scrambling to live off the land because the global economy has collapsed.
Instead, we usually get a decline that fills some of the gaps up, but not all of them. And because the market spends the majority of its time going up, these gap fills happen less often.
Because the market hasn't gone to zero, but plenty of stocks do, market gaps fill differently from stock gaps. Market gaps down fill more often than stock gaps down, on average.
But, there's one exception:
Across all of the data above, what's one data point that seems to defy the others?
When gaps are over 2% and given only two days to close, gaps up close more often than gaps down.
Why might this be? While we can't know for sure, it's an interesting point to study.
Do Stocks Need to Fill Gaps?
Using the data above, you'd have a hard time saying gaps "need" to fill gaps. Not all gaps get filled, and stocks can certainly continue on without filling a gap. The data supports that.
However, you could say stocks "want" to fill gaps. In our example, you see that the majority of gaps from 0.5% to 1.99% close within two days. So, more often than not, those gaps get filled, regardless of whether the gap was up or down.
This implies at least a slight tendency for gaps to fill, without it being a hard rule that gaps need to be filled.
How to Trade Gap Fills
To trade gap fills, you need to develop gap-fill setups in which you have an edge. How you do that depends on your strategy and your own personal situation.
There is also more than one way to trade a gap fill. Most people only think of the first way, which is to "fade" the gap. That's when you trade against the gap, looking for a gap fill.
But you can also use the gap fill to trade the other way. In that case, you'd wait for a gap fill before trading in the direction of the gap.
Here's an example of a framework you could use to create setups for fading the gap:
- Start with data like I used above for the QQQ. Use data for whatever instrument you want to trade, but I recommend using some type of broad market ETF or index futures.
- Is there a situation in which you might expect gap fills to happen more frequently? See if you can cross-reference your data to prove/disprove your theory. Example theory: "QQQ Gaps down will fill more often when QQQ is above the 50-day MA".
- Determine how much room you need to give the trade, and compare that to how much you expect to make on a gap fill. Is win-rate x R/R favorable?
- If win-rate x R/R is favorable, run a back-test of your setup, and tweak it until you maximize profitability per risk.
- Determine if you want to run a forward test or go live with the strategy.