Gap Fill Short (Gap Up Fill)

Entry Logic

• Exact Entry Trigger: Enter short when a stock that gapped up finds resistance and breaks below a key support level (e.g., the low of the first 5-minute candle).
• Confirmation Requirements: Volume should increase on the breakdown. The stock should be showing relative weakness against the market.
• Timeframe Required: 5-minute chart for entry and management.
• Location Context: The stock should be trading near a key resistance level (e.g., a previous day's high).
• Market Condition Requirement: A market that is showing signs of a reversal from a strong open.

Exit Logic

• Profit Target(s): The primary target is the full gap fill (the previous day's closing price).
• Scaling Out Rules: Cover 50% at the halfway point to the gap fill, and the rest at the full gap fill.
• Trailing Stop Rules: Use the high of the previous 5-minute candle as a trailing stop.
• Exit on Signal Failure: Exit if the stock fails to break down and instead makes a new high.
• Exit on Opposite Signal: Not applicable.
• Exit on Time Expiration: Exit if the gap has not filled by the end of the trading day.
• Exit on Momentum Loss: Exit if the stock stalls for more than 30 minutes.

Stop Loss Structure

• Hard Stop Location: Place a hard stop above the high of the day.
• Soft Stop Rules: None.
• Maximum Dollar Loss: Adhere to the 1% account risk rule.
• Maximum Percent Loss: The stop loss should not exceed 3% of the stock's price.
• Structural Stop Placement: The high of the day serves as the structural stop.

Risk Management Framework

• Risk Per Trade: Maximum 1% of trading capital.
• Maximum Daily Loss Limit: 3% of trading capital.
• Maximum Weekly Loss Limit: 6% of trading capital.
• Maximum Drawdown Allowed: 15% from peak equity.
• Risk-Reward Ratio Requirement: Minimum 2:1 to the full gap fill target.

Position Sizing Model

• Recommended Sizing Approach: Calculate position size based on the distance to the stop loss and the 1% account risk rule.
• Volatility-Based Adjustment: Reduce size if the stock is unusually volatile.
• Conviction-Based Sizing: Use full size for A+ setups.
• Scaling In Rules: Do not scale in.
• Scaling Out Rules: As defined in the Exit Logic section.

Trade Filtering

• Market Conditions to Avoid: Avoid on days with strong, persistent buying pressure.
• Specific Setups Required: A clear gap up to a resistance level.
• Stock/Instrument Requirements: Stocks with a history of filling gaps.
• Time of Day Restrictions: The setup can occur at any time of the day, but is most common in the morning.
• Chop/News Avoidance Rules: Avoid stocks with upcoming news.

Context Framework

• Trend Direction Assessment: The higher timeframe trend can be bearish or neutral.
• VWAP Relationship: The entry should ideally occur as the stock loses VWAP.
• Moving Average Relationship: The stock may be above its key moving averages, but should be showing signs of losing them.
• Range Location: The stock is trading at the upper end of its recent range.
• Higher Timeframe Alignment: A bearish reversal on the 5-minute chart is the primary signal.

Trade Management Rules

• When to Move Stop to Breakeven: After the first profit target is hit.
• When to Scale Out: As defined in the Exit Logic section.
• When to Add Size: Never.
• How to Handle Fast Moves vs Slow Moves: Let the trade work. Do not micromanage.

Time Rules

• Optimal Trading Window: Any time of the day.
• Times to Avoid: The last 30 minutes of the trading day.
• Session-Specific Notes: This strategy can work in any session.

Setup Classification

• A+ Setup Criteria: A gap up to a major resistance level with a strong reversal pattern.
• A Setup Criteria: A gap up to a minor resistance level with a reversal pattern.
• B Setup Criteria: A gap up with no clear resistance level.
• C Setup Criteria: A gap up in a very strong market.

Market Selection Criteria

• Instrument Requirements: Stocks with high liquidity.
• Volume/Liquidity Requirements: Minimum 1 million shares traded daily.
• Volatility Requirements: Moderate volatility.

Statistical Edge Metrics

• Expected Win Rate: 60-65%.
• Average Win Size: 2R.
• Average Loss Size: 1R.
• Profit Factor: 1.8 to 2.2.
• Expectancy Per Trade: +0.8R to +1.0R.

Failure Conditions

• Market Conditions Where Strategy Fails: Strong bull markets.
• Specific Scenarios to Avoid: When the stock is very strong and shows no signs of a reversal.

Psychological Rules

• Key Mental Discipline Requirements: Patience is key. Wait for the setup to confirm.

Advanced Components

• Market Regime Detection: Use market internals to gauge the strength of the reversal.
• Volatility/Liquidity Filters: Avoid illiquid stocks.
• Correlation Filters: Not applicable.
• Multi-Timeframe Alignment: A bearish divergence on the 15-minute chart can add conviction.

Location

• Where This Setup Is Strongest: At major resistance levels.
• Where This Setup Is Weakest: In the middle of a range.
• Location Changes Outcome: The closer the entry is to a major resistance level, the higher the probability of success.