At the heart of my gap strategy are "zones."   I use these to segment and organize the various gaps into groups that may exhibit similar trading patterns.  I have tested many types of support and resistance including pivots, Fibonacci's, and moving averages and found that the prior day Open, High, Low, Close (OHLC) and price direction from open to close (up or down), work well for my grouping purposes.

Gap zones work well for analyzing gap setups because they inherently incorporate:

  • Nearby support and resistance
  • Short term trend
  • Gap size
  • Trader psychology

I further segment these zones by utilizing additional support and resistance from prior days.  For each sub-zone (or "sweet spot" as I like to call them), I have a strategy with optimized stops and targets that provides a strong balance of win/loss %, profit factor, total net profit, and draw-downs.