Gap Trading: Types of Gaps and How to Trade Them

What Gap Trading Is and Why It Matters

Gap trading is the practice of reading and reacting to the empty space that appears on a chart when a market opens at a meaningfully different price from where it last closed. That space is called a gap. On a candlestick chart it shows up as a visible jump: yesterday's candle ends at one level, and today's first candle begins higher or lower with no trading in between. Because the Indian cash market is open only from 9:15 in the morning to 3:30 in the afternoon, prices are frozen for roughly seventeen and a half hours every weekday, plus the full weekend. All the news, global moves and orders that pile up during those closed hours get released in one burst at the open, and a gap is the visible result.

The reason gap trading deserves its own playbook is that a gap is not ordinary price movement. Intraday, price walks from one level to the next and you can react tick by tick. A gap skips that walk. If NIFTY closes at 24,500 and opens the next morning at 24,640, there was no chance to buy or sell anywhere between those two numbers in the regular session. Anyone holding a position overnight wakes up to a new starting point, and anyone wanting to trade the move has to decide whether to chase it, fade it or wait. Understanding the type of gap in front of you turns that decision from a guess into a structured read.

Throughout this guide the focus is on gap trading as practised in Indian markets, with the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE), real instruments like NIFTY, BANKNIFTY, Reliance and HDFC Bank, and the specific mechanics that shape how our market opens. The aim is to take you from the basic definition all the way to concrete entry, stop and sizing rules, with worked rupee examples at each step. This is educational material to help you understand the mechanics of gaps. It is not financial advice, and nothing here is a recommendation to buy or sell any security.

Why Gaps Form: The Overnight Market You Cannot Trade

Every gap has a cause, and the cause is almost always information that arrives while the exchange is shut. Indian listed companies report quarterly results, declare dividends, announce buybacks and disclose order wins through exchange filings, and many of these land after the 3:30 close or before the 9:15 open. A strong Reliance results announcement released in the evening gives every trader the same overnight window to digest it, so the stock reprices in one move when it opens rather than drifting up through the afternoon.

The second big driver is global linkage. Indian equities do not trade in isolation. United States markets close in the early hours of Indian morning, and a sharp move on Wall Street, a jump in crude oil, a swing in the US dollar index or a policy surprise from a major central bank all feed into where our market opens. Asian markets such as Japan and Hong Kong are trading live during the Indian morning and add their own pull. When all of these point the same way, the open gaps hard in that direction.

A third source is stock specific and event specific: a regulatory order, a credit rating change, a block deal, a budget announcement, a monetary policy decision from the Reserve Bank of India, or even a single large fund repositioning before the bell. The common thread is that the market had no opportunity to price the event gradually. Gap trading is therefore really the art of reading how the market chose to absorb an information shock in one jump, and then judging whether that first reaction was too much, too little or about right.

A gap is the market repricing an information shock in a single jump, because it never had the chance to do it gradually.

India Open Behaviour: The Pre-Open Session and GIFT Nifty

To trade gaps in India you have to understand exactly how our open is built, because it is not a single instant. The NSE runs a pre-open session from 9:00 to 9:15 in the morning. The first phase, roughly 9:00 to 9:08, is the order entry and price discovery window where buy and sell orders are collected and a single equilibrium opening price is calculated for each stock. From about 9:08 to 9:12 those orders are matched at that discovered price, and a short buffer leads into the normal continuous session that begins at 9:15. The gap you see on the daily chart is essentially the difference between yesterday's close and this discovered opening price.

It also helps to know that the Sensex on the BSE follows the same opening rhythm, so the two main benchmarks tend to gap together when a global cue hits. There is a difference, though, between how a single stock and a broad index gap. An index gap is the blended result of dozens of constituents repricing at once, so it is usually smoother and smaller in percentage terms than the sharpest individual stock gaps, where one piece of company news can move a single price violently. A second India detail matters for swing traders: cash equities settle on a T+1 basis, meaning shares and funds change hands one working day after the trade, so an overnight position that gaps against you is real exposure you carry into the next session, not a paper entry you can wish away.

Because of price discovery, the open is not random. By watching the pre-open you can often see the indicated opening level for NIFTY constituents and large stocks settle several minutes before 9:15. This is valuable for gap traders: instead of being surprised at 9:15, you can see the likely gap forming and prepare your plan. Remember that pre-open quotes can be thin and can shift as more orders arrive, so treat the early indicated price as a draft rather than the final number.

The most watched overnight cue for the index is GIFT Nifty, the NIFTY futures contract that trades at the GIFT City international exchange and runs across hours when the domestic market is closed. Traders read GIFT Nifty late at night and early in the morning as a live estimate of where NIFTY will open. If GIFT Nifty is trading 150 points above the previous NIFTY close, the cash index is likely to gap up by a broadly similar amount, subject to how the pre-open auction actually resolves. GIFT Nifty is a guide to direction and rough size, not a precise prediction of the opening tick.

One more India specific factor shapes how far a gap can run: circuit limits. Individual stocks have daily price bands (commonly 5 percent, 10 percent or 20 percent depending on the security), and the broad market has index level circuit breakers that pause trading after large moves. A stock can gap straight into its upper or lower circuit, which means it opens locked with buyers or sellers unable to transact freely. Knowing a name's circuit band tells you the maximum the gap can extend in a single day and warns you when a position could become hard to exit.

The Four Types of Gaps in Gap Trading

Classical technical analysis sorts gaps into four families, and the whole discipline of gap trading rests on telling them apart. The four are the common gap, the breakaway gap, the runaway gap (also called a measuring or continuation gap) and the exhaustion gap. The names describe where in a trend the gap appears and what it tends to signal about what comes next. A gap by itself is just a jump; it only becomes tradeable information once you place it in the context of the trend, the volume behind it and the levels around it.

The quick way to think about the four is by position in a move. A common gap appears inside a quiet, sideways range and usually means little. A breakaway gap launches a brand new trend out of a base or through a major level. A runaway gap appears in the middle of an established trend and confirms the move has strength left. An exhaustion gap appears near the end of a long trend, a final lunge that often marks the turn. The next four sections take each one in turn with the clues that help you classify it in real time.

Common Gaps: The Noise of Quiet Ranges

A common gap, sometimes called an area gap or trading gap, appears when a stock or index is moving sideways in a calm range with no strong trend. It is usually small, forms on unremarkable volume, and carries no special message about direction. A mid cap stock that has been drifting between ₹480 and ₹500 for two weeks might close at ₹492 and open at ₹495 simply because a modest overnight order imbalance nudged the price. There is no breakout, no news of note, just a little slack getting taken up at the open.

It helps to picture the difference with a concrete case. Imagine HDFC Bank trading in a tight ₹1,680 to ₹1,710 band for a fortnight with nothing on the news wires. It closes at ₹1,696 and opens the next day at ₹1,701, a gap of just five rupees on volume no different from any other morning. Nothing has changed about the company or the trend, so this small jump is almost certainly a common gap that the ordinary back and forth of the range will erase within a session or two. The lesson is that size and context matter: a tiny gap inside a quiet range, on average volume and with no catalyst, rarely deserves an aggressive directional bet.

The defining feature of common gaps is that they tend to fill quickly, often within the same session or the next few. Because the stock is range bound, price oscillates back through the gap area naturally as buyers and sellers keep trading within the established band. For this reason many traders treat common gaps as background noise rather than a signal. If anything, a common gap inside a range can be a low conviction fade candidate: price drifts up at the open, then falls back to the prior close as the range reasserts itself.

The practical takeaway for gap trading is classification discipline. Before you act on any gap, ask whether the underlying is trending or ranging. If it is clearly ranging and the gap is small on ordinary volume, you are most likely looking at a common gap, and the right response is usually caution or a small mean reversion view, not an aggressive trend trade. Mistaking a common gap for a breakaway is one of the most frequent and expensive errors new gap traders make.

Breakaway Gaps: A New Trend Begins

A breakaway gap is the exciting one. It occurs when price jumps out of a consolidation base or punches through a well defined support or resistance level, signalling the start of a new trend. The hallmark of a genuine breakaway gap is heavy volume. When real demand or supply overwhelms a level that has held for weeks, the market gaps through it and a fresh move begins. Unlike a common gap, a breakaway gap usually does not fill quickly, because the level it cleared has flipped roles and now acts as the new floor or ceiling.

Picture HDFC Bank coiling between ₹1,650 and ₹1,700 for a month while traders wait for a catalyst. Strong results arrive after the close, and the next morning the stock opens at ₹1,742, gapping clean above the ₹1,700 ceiling on volume far heavier than its daily average. That is a textbook breakaway gap. The old resistance at ₹1,700 now becomes support, and as long as price holds above it, the breakout has a reason to continue. Traders who recognise the pattern look to participate in the new trend rather than bet on a return to the range.

The reason volume matters so much is that it separates a real breakaway from a false one. A gap above resistance on thin volume is suspect, because there may not be enough committed buying to sustain the move, and the stock can slip back into its range, trapping breakout chasers. A breakaway gap backed by strong volume, a clear catalyst and a hold above the broken level is the higher quality setup. This is also why breakaway gaps in liquid, heavily traded names like the NIFTY and BANKNIFTY constituents tend to be more reliable than in thin counters where a few orders can create a misleading gap.

Runaway Gaps: The Trend Confirms Itself

A runaway gap, also known as a measuring gap or continuation gap, appears in the middle of an already established trend. The market is already moving in one direction, fresh buyers (in an uptrend) keep stepping in, and a wave of demand gaps the price further along the same path. Rather than signalling a new trend, a runaway gap confirms the existing one: it shows that conviction is strong enough that participants are willing to pay up at the open rather than wait for a pullback.

A concrete example makes the idea clearer. Suppose Reliance has been trending up steadily for three weeks, climbing from ₹2,800 to ₹2,980 as buyers keep stepping in on every dip. One morning, after a positive read across the energy sector overnight, it gaps up from a ₹2,980 close to open at ₹3,025 on volume well above its recent average, then keeps grinding higher through the day. That gap sits in the middle of an existing uptrend, is supported by strong volume, and is followed by continued progress, which are the classic marks of a runaway gap. A trader reading it correctly stays with the trend rather than trying to fade a move that is clearly still being fed by fresh demand.

The measuring nickname comes from a rough rule of thumb that a runaway gap often appears near the midpoint of the whole move, so the distance already travelled before the gap can hint at how much further the trend might run. Treat this as a loose guide, not a precise target. The more useful idea for gap trading is what the gap tells you about strength: a clean continuation gap in the direction of the trend, on solid volume, is evidence to stay with the move rather than fight it. Counter trend traders who keep trying to pick a top against a series of runaway gaps tend to get steamrolled.

Distinguishing a runaway gap from an exhaustion gap is the hard part, because both appear after a trend is already underway. The key clues are position and follow through. A runaway gap sits in the body of the move and is followed by continued progress in the same direction. An exhaustion gap comes after an extended run, often on a climactic surge in volume, and then fails to make further headway. You frequently cannot label a gap with certainty until you see what happens in the sessions after it, which is exactly why disciplined stops matter so much in gap trading.

Exhaustion Gaps: The Last Gasp of a Move

An exhaustion gap forms near the end of a long, mature trend. After a stock or index has run a long way, the final buyers (in an uptrend) rush in all at once, often driven by fear of missing out, and the price gaps strongly in the direction of the trend on very heavy, sometimes climactic, volume. The problem is that this surge represents the last of the demand rather than the start of more. With the latecomers now in, there is little fresh buying left, and the move stalls. When price then fails to push higher and instead reverses back through the gap, the exhaustion is confirmed and a turn is often underway.

Suppose a momentum stock has rallied from ₹600 to ₹980 over several weeks. One morning it gaps up to ₹1,030 on enormous volume, the kind of day where it is all over social media and trading chatter. By midday it has slipped back below ₹980, filling the gap, and it closes near the lows. That failed gap up, on a blow off in volume after an extended run, is the classic exhaustion signature. Traders who were long start protecting profits, and short term traders may look for a reversal as the trend that powered the move runs out of fuel.

Because an exhaustion gap and a runaway gap look similar in the moment, the safest way to use the concept is as a warning rather than a precise top or bottom signal. When you see a powerful gap arrive after a trend has already extended a long way, with volume spiking far above normal and price unable to hold the new level, treat it as a reason to tighten stops, take partial profits, or stand aside, not as an invitation to add aggressively at the very end of a move. The gap fill that follows an exhaustion gap is often fast and unforgiving.

Gap Fill: What It Means and the Probability Myth

A gap fill happens when price trades all the way back to the previous session's close, erasing the empty space on the chart. If NIFTY closes at 24,500 and opens at 24,640, the gap is filled when the index trades back down to 24,500 at some point. The popular phrase you will hear is that gaps always fill. This is one of the most repeated and most misleading ideas in retail trading. Many gaps do fill, especially small common gaps inside ranges, but plenty never fill, particularly strong breakaway and runaway gaps that mark genuine trend changes. Always is the wrong word.

It is also worth separating a full fill from a partial fill, because the distinction changes how you manage a trade. A partial fill is when price retraces some of the gap but not all of it, for example NIFTY opening at 24,640 above a 24,500 close, dipping to 24,560 and then turning back up without ever touching 24,500. Many strong gaps only fill partially before the trend resumes, which is why setting your profit target at the exact prior close can leave you waiting for a fill that never arrives. Treating the gap zone as a band to watch, rather than a single magic number, gives a more realistic picture of how far a pullback is likely to travel.

The right way to think about gap fill is as a probability that depends on the type of gap, not a certainty. A small common gap on an ordinary day has a high chance of filling soon, because the underlying is range bound and price naturally revisits the area. A breakaway gap that clears a major level on heavy volume has a much lower chance of filling quickly, because the move has real conviction behind it and the prior level now acts as support or resistance. So the question is never simply will it fill, but what kind of gap is this, and what does that imply about the odds.

There is also a timing distinction worth keeping. Some traders separate same day gap fills, where price closes the gap within the opening session, from eventual fills that may take days, weeks or months. For an intraday gap trader, only the near term matters: a gap that fills three weeks later is irrelevant to a trade you intend to hold for a few hours. When you build a gap trading plan, decide in advance whether your edge is in the first thirty to sixty minutes after the open or over a multi day swing, because the gap fill statistics that matter are completely different for those two horizons.

Gap and Go: Trading in the Direction of the Gap

Gap and go is a momentum strategy that bets the gap is the beginning of a directional move, not a fade. The idea is simple: a stock or index gaps up on a real catalyst, holds above the opening price, and then continues higher as the session develops. The trader joins in the direction of the gap rather than betting against it. Gap and go works best when the gap is a breakaway or a strong continuation gap, backed by a clear reason (results, an upgrade, a sector wide global move) and supportive volume.

A common, structured way to play gap and go is to wait for the first few minutes after 9:15 to define an opening range, say the high and low of the first five or fifteen minutes, and then enter when price breaks out of that range in the gap's direction. Suppose Reliance gaps up and the first fifteen minutes carve out a band between ₹3,005 and ₹3,025. A gap and go trader buys on a decisive break above ₹3,025, placing the stop below the opening range low. This waiting step filters out weak gaps that immediately reverse, because a true gap and go keeps making higher highs rather than sagging back toward the prior close.

The discipline that makes gap and go work is patience at the open and respect for the level that defines your idea. If the stock gaps up but then breaks back below the opening range low, the gap and go thesis is wrong and you should be out. The opening minutes of the Indian session can be volatile, with the pre-open imbalance settling and early orders clearing, so chasing the very first tick is risky. Letting the opening range form gives the gap a chance to prove itself before you commit capital.

Fading the Gap: Betting on a Gap Fill

Fading the gap is the mirror image of gap and go. Here the trader bets that the gap is an overreaction that will reverse, so price moves back toward the prior close and fills the gap. This approach suits common gaps and weak, low conviction gaps far more than breakaway gaps. A small gap up in a range bound stock with no real news, on ordinary volume, that stalls at the open and starts drifting down is the kind of setup a fade trader looks for. The thesis is that there is no fresh demand to sustain the higher open, so the range pulls price back.

A practical fade entry waits for evidence that the gap is failing rather than selling the instant the market opens. For a gap up fade, a trader might watch for price to make an early high, fail to push past it, and then break below the opening range low, entering short with a stop just above that failed high and a target near the prior close where the gap fills. The prior close is a natural profit objective because that is where the gap, by definition, is fully closed. Once price reaches it, the original edge is spent and there is no reason to overstay.

The danger in fading gaps is fading the wrong kind. If you short a breakaway gap because you assume gaps always fill, you are standing in front of a freshly launched trend on heavy volume, which is how accounts get hurt. The safest fades are against gaps that lack a strong catalyst, occur in ranging instruments, and show early signs of stalling. If a gap you faded keeps extending instead of reversing, your thesis is broken and the stop must do its job. Fading is a precision tool for specific conditions, not a blanket assumption to apply to every gap you see.

Risk Management and Stops for Gap Trading

Risk management is where gap trading is won or lost, because the open is genuinely more volatile than the rest of the day. Spreads can be wider, price can whip in the first few minutes, and a thesis that looked clean in the pre-open can fail fast. The first rule is to size small. If a normal intraday position risks a certain rupee amount, a gap trade taken in the volatile opening window deserves smaller size, not larger, precisely because the swings are bigger and your stop has to be placed further away to avoid being knocked out by noise.

Stops in gap trading should be anchored to a structural level, not to a fixed tick distance. For a gap and go long, the logical invalidation is a break back below the opening range low or below the level the gap cleared; if price goes there, the breakout has failed. For a gap fade short, the stop sits above the failed opening high. The point is that your stop marks where your idea is proven wrong, not an arbitrary number. Decide that level before you enter, while you are calm, because the first fifteen minutes are no time to be inventing a risk plan.

Two India specific hazards deserve a plan. First, overnight gap risk: if you carry a position into the next session, you are exposed to a gap against you that no intraday stop can prevent, because the stop only triggers once trading resumes and price has already jumped past it. This is the core reason many traders reduce or close positions before major scheduled events. Second, circuit limits: a stock that gaps into its upper or lower circuit can be locked, meaning you may not be able to exit at all until it unlocks. Position sizing has to assume the worst realistic gap, not the average day.

Finally, keep the costs of trading honest in your plan. In India, equity and derivatives trades attract Securities Transaction Tax (STT), and brokerage and exchange charges carry Goods and Services Tax at 18 percent on those charges. Frequent gap trading at the open generates a lot of transactions, and those costs compound. A strategy that looks profitable before costs can be marginal after them, so model your expected edge net of STT, GST on charges and slippage, which tends to be worse in the fast moving opening minutes.

A Worked NIFTY and BANKNIFTY Gap Example

Walk through a hypothetical index example to see the pieces fit together. Suppose NIFTY closes a session at 24,500. Overnight, United States markets rally and GIFT Nifty trades around 24,660, roughly 160 points above the close. In the 9:00 to 9:08 pre-open window, the indicated opening level for NIFTY settles near 24,640, so the market is set to gap up about 140 points. A gap trader now has a clear picture before 9:15: a sizeable gap up driven by a genuine global cue, which leans toward a continuation read rather than a quiet common gap.

Say the trader prefers gap and go on the index through options, since index options on NSE are cash settled and there is no delivery to worry about. After 9:15, NIFTY's first fifteen minutes form an opening range between 24,620 and 24,665. The plan is to act on a clean break above 24,665, with the idea invalidated if price falls back under 24,620. Because the NIFTY lot size is 65 (the exchange revises lot sizes periodically, so always check the latest NSE circular before trading), every one point move in the index is worth ₹65 per lot, so position sizing has to respect how quickly rupee profit and loss adds up: a 50 point swing is ₹3,250 per lot before costs.

Now contrast with BANKNIFTY, which is more volatile and where the lot size is 30. A 100 point move in BANKNIFTY is ₹3,000 per lot, and BANKNIFTY routinely moves several hundred points around the open, so the same nominal stop distance carries very different rupee risk than on NIFTY. A trader who blindly uses the same point based stop on both indices is taking on far more risk on BANKNIFTY without realising it. The lesson is that gap trading rules must always be translated into rupee risk per lot, using the correct current lot size, before any position is taken.

Finally, suppose the gap up fails: NIFTY opens at 24,640, cannot clear 24,665, and breaks below the opening range low of 24,620. The gap and go thesis is dead, the trader is stopped out small, and attention may shift to whether the gap fills back toward 24,500. This is the everyday reality of gap trading. Not every gap follows through, the edge is in playing many gaps with controlled risk and letting the winners that do follow through pay for the small losers that do not.

Trading Gaps With Options: IV, Theta and Cash Settlement

Many Indian traders express gap views through options rather than futures or cash, so it is worth understanding how gaps interact with option pricing. Before a known event, implied volatility (IV) in the options tends to rise, because the market is pricing in the chance of a big move. When the event passes and the gap actually happens, that uncertainty resolves and IV often collapses, an effect traders call IV crush. This matters enormously for gap trading: you can be right about the direction of the gap and still lose money on a bought option if the IV crush after the open shrinks the option's value faster than the price move grows it.

Because of IV crush, simply buying a call before expected good results and hoping for a gap up is a trap many beginners fall into. If the gap is smaller than the IV had priced in, the option can fall even though the underlying rose. More experienced traders structure gap trades to be less exposed to a volatility collapse, for example using spreads that buy one option and sell another, so part of the IV crush works in their favour. The deeper point is that an option is a bet on direction, magnitude and volatility together, and gaps move all three at once.

Two India mechanics make options a clean tool for index gap trading. First, NIFTY and BANKNIFTY options are cash settled, so on expiry there is no obligation to deliver shares: any in the money value is settled in rupees, which keeps gap trades simple to manage. Second, expiry choice now differs by index. On NSE only NIFTY 50 still has weekly options, and they expire every Tuesday, while BANKNIFTY trades monthly only after its weekly contracts were discontinued in November 2024, with the monthly expiring on the last Tuesday. So a NIFTY trader can pick a near dated weekly contract for a quick gap play or a monthly for a swing view, whereas a BANKNIFTY trader works with the monthly contract. Be aware that weekly options very close to expiry carry rapid time decay (theta), which can erode a bought position quickly if the gap does not move your way fast enough.

Common Mistakes and a Gap Trading Checklist

The most common gap trading mistake is treating all gaps the same. A trader who assumes every gap fills will fade breakaway gaps and get run over; a trader who chases every gap as momentum will buy common gaps that quietly reverse. The entire skill is classification: is this a common, breakaway, runaway or exhaustion gap, and what does the volume and context say. Skipping that step turns a structured edge into a coin flip. The second big mistake is chasing the very first tick at 9:15 instead of letting the opening range form and giving the gap a chance to declare itself.

Other frequent errors include ignoring volume, which is the single best clue to whether a breakaway or exhaustion gap is real; sizing too large because the open feels exciting; placing stops too tight for the open's natural volatility, so noise stops you out before your idea has a chance; and forgetting overnight gap risk and circuit limits when carrying positions. Many traders also forget to net out STT, GST on charges and slippage, which quietly turn a marginal opening strategy into a losing one over hundreds of trades.

Use a simple pre trade checklist for every gap. One: is the underlying trending or ranging. Two: what type of gap is this and does volume support that read. Three: is there a real catalyst behind the gap. Four: where exactly is my entry trigger, my stop (the level that proves me wrong) and my target. Five: what is my rupee risk per lot using the correct lot size, and is it small enough for the volatile open. Six: am I prepared for the gap to fail and to take the small loss without arguing with the market.

Gap trading rewards patience, classification and disciplined risk far more than prediction. You do not need to know whether any single gap will fill or follow through. You need a repeatable process that puts you in high quality gaps with controlled, pre defined risk, and lets the follow through gaps pay for the failures. The best way to build that skill without risking capital is to practise on a paper trading account, watching the pre-open, classifying each morning's gaps, and journalling how they resolve. Remember that this is educational material to help you learn the mechanics, not financial advice.

Frequently asked questions

What is gap trading in the stock market?

Gap trading is a strategy built around the price jump that appears when a market opens at a different level from its previous close. The empty space on the chart is called a gap. Traders classify each gap as common, breakaway, runaway or exhaustion, then either trade in its direction (gap and go) or bet it reverses (fading for a gap fill).

What are the four main types of gaps?

The four classical gaps are common, breakaway, runaway and exhaustion. A common gap forms in a quiet range and usually means little. A breakaway gap launches a new trend out of a base on heavy volume. A runaway gap appears mid trend and confirms its strength. An exhaustion gap comes after a long run and often marks the turn.

Do gaps always fill?

No. The idea that gaps always fill is a myth. Many small common gaps do fill quickly because the underlying is range bound, but strong breakaway and runaway gaps backed by real volume often do not fill for a long time, if ever. Gap fill is a probability that depends on the gap type, not a guarantee.

How does the NSE pre-open session affect gaps?

The NSE pre-open session runs from 9:00 to 9:15, with order entry and price discovery from roughly 9:00 to 9:08 that calculates a single opening price for each stock. The gap on the daily chart is the difference between the previous close and this discovered opening price, so watching the pre-open lets gap traders see the likely gap forming before 9:15.

What is the gap and go strategy?

Gap and go is a momentum approach that trades in the direction of the gap rather than against it. A trader typically waits for the first five to fifteen minutes to form an opening range, then enters on a break of that range in the gap's direction, with a stop on the other side. It works best on breakaway and strong continuation gaps backed by a real catalyst and volume.

Is gap trading risky for beginners in India?

Gap trading is higher risk than mid session trading because the open is more volatile, spreads can be wider, and overnight gaps can move past your stop before trading resumes. Stocks can also gap into upper or lower circuits and lock. Beginners should size small, use structural stops, account for STT and 18 percent GST on charges, and practise on a paper trading account first.

What is GIFT Nifty and how does it predict gaps?

GIFT Nifty is the NIFTY futures contract that trades at the GIFT City international exchange across hours when the domestic market is shut. Traders read it overnight as a live estimate of where NIFTY will open. If GIFT Nifty trades well above the previous NIFTY close, the cash index is likely to gap up by a broadly similar amount, though the pre-open auction decides the exact level.

Can I trade gaps using options on NIFTY and BANKNIFTY?

Yes, and many Indian traders do because NIFTY and BANKNIFTY options are cash settled. Note that on NSE only NIFTY 50 still has weekly options, expiring every Tuesday, while BANKNIFTY now trades monthly only since its weekly contracts were discontinued in November 2024. Be careful of implied volatility crush: IV often rises before an event and collapses after the gap, so a bought option can lose value even if you call the direction right. Spreads reduce this risk, and weekly options very close to expiry decay fast due to theta.