The Gap Fill Strategy: How to Trade Unfilled Price Gaps
One of the Most Reliable Patterns in Technical Analysis
The Gap Fill is one of the most reliable patterns in technical analysis. Price gaps — sudden jumps or drops between trading sessions — have a strong statistical tendency to eventually "fill," meaning price returns to where it gapped from.
At TarsierAlpha, our Gap Fill strategy is one of three core setups we scan for daily across 500+ tickers.
What Is a Price Gap?
A price gap occurs when a stock opens significantly higher or lower than where it closed the previous day. This creates a "gap" on the chart — a range of prices that were never actually traded.
Common Gap Causes
- Earnings surprises (up or down)
- Analyst upgrades/downgrades
- News events
- Market-wide sentiment shifts
Why Gaps Fill
Markets are mean-reverting. When prices jump suddenly, they often leave behind "unfinished business" at the gap level. Institutional traders and algorithms are aware of these levels and frequently use them as targets.
Studies show that the majority of gaps eventually fill. The edge isn't that every gap fills — it's that the probability is high enough to build a consistent strategy around it.
TarsierAlpha Gap Fill Entry Criteria
We don't just trade every gap. We filter for high-probability setups using our scoring system. A Gap Fill candidate must meet all of the following:
| Criteria | Requirement | Why It Matters |
|---|---|---|
| Gap size | 5–20% unfilled gap visible on chart | Smaller gaps fill faster; massive gaps may take too long |
| RSI | 30–50 range | Confirms oversold recovery zone — momentum building |
| MACD | Bullish crossover within last 10 days | Technical confirmation of direction change |
| Volume | >120% of 30-day average | Institutional buying = conviction behind the move |
| Entry Score | 62+ / 100 | Composite signal strength |
Exit Strategy: The Ladder
We don't try to time the exact top. We exit in three tranches:
- Target 1 (33% of position): First resistance level or +50–80% options gain
- Target 2 (33% of position): Midpoint of the gap or +100–150% options gain
- Full Fill (34% of position): Let the final third ride with house money to the gap fill target
This approach locks in profit while leaving room for the full move.
Real Example: XYZ (Block Inc.) — February 2026
Block Inc. had gapped down significantly on earnings and left a large unfilled gap above the current price. Our scanner identified it with a score of 70/100.
Trade Details
- Entry: $2.64 per contract (3 contracts)
- Exit: $11.18 per contract
- Hold time: 2 days
XYZ (Block Inc.) — $2.64 → $11.18 in 2 days (+$2,562 profit)
The gap filled faster than expected — a 2-day explosive move. We exited all contracts rather than laddering, capturing the full move.
Current Gap Fill candidates are tracked live on tarsieralpha.com. Recent watchlist includes MSFT (Score: 74) and ADBE (Score: 63).