Gap Filling Strategy

This trading strategy identifies gaps from the previous day's close and enters trades with the assumption that the price will 'fill the gap.' It goes long if there's a downward gap and shorts if there's an upward gap, with exits based on session changes, new gaps, or position reversals.

To trade this strategy manually on TradingView:

• Use a daily candlestick chart to identify gaps from the previous close.
• An upward gap occurs when today's open is higher than yesterday's high.
• A downward gap occurs when today's open is lower than yesterday's low.
• Enter a long position if there's a downward gap, or enter a short position if there's an upward gap.
• Set a limit order at yesterday's close for a target exit, attempting to capitalize on the gap being filled.
• Close the position manually at the end of the trading session or when a new gap forms in the opposite direction, based on your risk preference.

To enhance the Gap Filling Strategy for manual trading on TradingView, a thorough plan involving additional technical analysis, refined entry/exit parameters, and strategic trade management should be implemented. By integrating the following methods, the strategy can become more robust and adaptable to various market conditions.

• Expand Gap Analysis: Monitor the behavior of different gap types over a longer period to identify common price patterns post-gap. This involves analyzing common, breakaway, runaway, and exhaustion gaps separately.
• Enhance Volume Confirmation: Use a volume filter to strengthen entry signals. Enter trades only when gaps occur with significantly higher volume than the average, this helps to confirm the strength and significance of the gap.
• Implement Multi-Timeframe Analysis: Confirm gap signals with trend direction on higher timeframes. For instance, only take long positions on downward gaps if the higher timeframe is showing an uptrend, ensuring alignment with the overall market direction.
• Refine Entry Points: Instead of entering immediately after a gap is identified, wait for a price action confirmation, such as a bullish or bearish candlestick pattern, improving the likelihood of successful trade execution.
• Set Dynamic Profit Targets: Rather than always aiming to fill the entire gap, use previous support/resistance levels or Fibonacci retracement levels to set variable profit targets, tailoring exits to current market conditions.
• Apply Adaptive Stop Loss: Use a percentage of the Average True Range (ATR) to set a flexible stop loss level. This accounts for the market's volatility and prevents tight stop-losses from being triggered prematurely.
• Use a Trailing Stop: To protect profits in trades going in the expected direction, apply a trailing stop that moves with the price, securing gains while giving the trade room to breathe.
• Reassess Positions Post-News Events: Financial news can greatly affect gap dynamics. Review open positions after major announcements or earnings releases that may impact the underlying sentiment and thus the behavior of the gap.
• Incorporate Sentiment Analysis: Use market sentiment tools to gauge investor enthusiasm or skepticism around certain stocks, adding an extra layer of confirmation to gap trades.
• Regularly Back-Test: Continuously back-test the strategy against historical data to validate its effectiveness across different market phases and make necessary adjustments.

The Gap Filling Strategy suits traders who can quickly adjust to changing market conditions and are comfortable with short-term, potentially high-volume trading scenarios. This strategy is particularly tailored to:

• Day Traders: Those who capitalize on daily market volatility and seek to exploit short-term price movements, closing their positions by the end of the trading session.
• Technical Analysts: Traders proficient in reading price charts, identifying gap patterns, and making decisions based on technical indicators and price action confirmation.
• Momentum Traders: Individuals looking to take advantage of price momentum following a significant gap, indicating strong buyer or seller presence.
• High-frequency Traders: Traders who are comfortable and capable of handling a large number of trades in a short time span, adjusting swiftly to new information and new gaps forming.

Overall, this strategy falls under active trading styles that require constant market monitoring, fast decision-making, and meticulous risk management.

• How it works: Identifies significant gaps between a session’s opening and the previous day's closing price, then predicts and trades on the 'filling' of these gaps.
• Trader Suitability: Tailored for day traders, technical analysts, and those focusing on momentum and high-frequency trading.
• Manual Trading: Requires monitoring daily charts for gaps, validating with volume, and confirming with higher timeframe trends or price action before entry.
• Automation: Utilizes TradingView's scripting capabilities for automating entry/exit based on predefined conditions related to gap occurrences.
• Alerts Combination: Combines automated alerts with manual oversight, particularly for validating gap significance or post-news event reassessments.
• Optimization: Involves refining entry points, setting dynamic profit targets, and adapting stop-loss strategies such as using ATR percentage.
• Risk Management: Incorporates flexible exit strategies and the use of trailing stops to protect gains while considering market sentiment and volatility.
• Performance Evaluation: Regular back-testing against historical data is crucial to ensure strategy adaptability to market changes.