A gap up occurs when price opens above the prior day's high, creating a price vacuum. It reflects major overnight positive news with aggressive buying and reluctant selling.
Aggressive buying in action. The gap shows buyers willing to pay any price while holders refuse to sell. A larger gap = more bullish sentiment. If the gap isn't quickly filled, the uptrend is confirmed.
After the gap forms, if a pullback to the gap's upper boundary finds support, enter long (win rate 65%). Stop-loss below the gap's lower boundary. If the gap fills on the same day, the signal is invalid.
Determine gap type: breakaway (strongest), continuation (mid-trend confirmation), or exhaustion (late-trend warning). Volume expansion on the gap strengthens reliability.