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2007issue C071-3

Evaluating gap and lap opens against short-horizon baselines

Classify an opening print as a gap or a lap, then compare that class with a liquidity-filtered baseline and a two-hundred-day-average-regime check before a short-horizon trade hypothesis is written.

  • A gap-up or gap-down opens outside the prior day's range; a lap-up or lap-down only clears the prior close.
  • A price-and-liquidity-screen keeps names above five dollars with a 100-day average volume above 250,000 shares and supplies the short-horizon baseline.
  • In the historical sample, average subsequent returns were negative after gap-ups and positive after gap-downs, with a larger contrast when the open was 10 percent or more beyond the prior extreme.
  • A two-hundred-day-average-regime check is an extra condition on the opening-structure test, not a substitute for classifying the print.
Entries in this reading3 entries
Current trackGap trading24 readingsGap analysis26 readingsMoving average597 readings

Read the open as structure

An opening print can look like a news event. This note treats it as a chart-structure test. The first question is whether the print cleared the prior high or low, or only the prior close.

Editorial reading: the sequence is to classify the open, compare that class with a liquidity-filtered baseline, then apply a two-hundred-day-average-regime check before a short-horizon trade hypothesis is written.

Gaps and laps are different prints

A gap-up is an opening print above the previous session high, so trade begins outside the prior day's range. A gap-down is an opening print below the previous session low, so trade also begins outside that range.

A lap-up is an opening print above the previous session close, without requiring a break of the prior high. A lap-down is an opening print below the previous session close, without requiring a break of the prior low.

A filtered short-horizon baseline

The historical sample applied a price-and-liquidity-screen. It kept names priced above five dollars whose 100-day average volume exceeded 250,000 shares.

In that filtered universe the sample recorded an unconditional average move after one day, after two days, and after one week. Those horizons are the baseline against which opening classes were compared.

What followed gap and lap opens

Average subsequent returns after gap-ups in the sample were negative at the one-day, two-day, and one-week horizons. Average subsequent returns after gap-downs were positive.

The contrast was larger when the open was 10 percent or more beyond the prior extreme. The same directional pattern appeared for openings 10 percent or more away from the prior close: lap-ups were followed by a negative one-week average, and lap-downs by a positive one-week average.

Add a 200-day location check

A two-hundred-day-average-regime filter was added as an extra condition on the opening-structure test. The check asks whether price sits above or below its 200-day moving average.

Editorial reading: the short-horizon hypothesis comes after the opening class, the liquidity-filtered baseline, and the 200-day location check are all in view. The historical sample describes that sequence. It does not state a present-day rule.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
10 of 20 in the Gap trading track
20071-4 pp.Next on Gap tradingEvaluating same-day gap rules across price, momentum, and weekdayFreeze the same-session hold first: enter at the regular open and exit at that day's close before any other slice is judged.
All readings on this track · 20 readings
  1. 1988Constructing short-horizon gap and trailing-stop rules
  2. 1996Constructing closed rules for spikes, time stops and gap failures
  3. 1999Opening-gap same-day fade rules
  4. 1999Evaluating same-session opening-gap rules
  5. 1999Constructing mechanical gap-fade entry and exit rules
  6. 2000Constructing opening-gap continuation entry and exit rules
  7. 2000Gap types as trade hypotheses
  8. 2003One-day fade-the-gap rules remain unfinished across market climates
  9. 2003Gap and pivot entry rules with stops written before the fill
  10. 2007Evaluating gap and lap opens against short-horizon baselines
  11. 2007Evaluating same-day gap rules across price, momentum, and weekday
  12. 2011Session gaps as a fade-or-follow drill
  13. 2015Testing gap continuation breakouts as one procedure
  14. 2015Downside exhaustion gaps as a ten-session fade procedure
  15. 2016Constructing a gap-fill long as one entry and exit checklist
  16. 2016Gap-reversal entry and trailing-stop rules
  17. 2016Constructing late entries from serial uptrend gaps
  18. 2017Premarket gap permission with cup breakouts and one tight trail
  19. 2018Inside-range gap breakout entry and stop rules
  20. 2020Closing-range breakout after a downside gap
By fieldChart patterns312 readingsBy year2007144 readings
All 24 readings tagged Gap trading
Also on Gap trading5 readings
1991The midpoint retest after a missed breakaway gap2000Gap types as trade hypotheses2011Session gaps as a fade-or-follow drill2016Constructing late entries from serial uptrend gaps2000Constructing opening-gap continuation entry and exit rules