This is the not-so-great side of trading the gap: You are right on calling for the gap to be filled, the problem is, the market stops you out before you can realize those profits, and instead you walk away with nothing but a loss. That’s the world of trading and that is exactly what happened to mew on 8/3. The trade is shown below.

Let’s see how this trade setup did against my gap-fade checklist…

 

1) S&P under 10 points? Yes

2) Is the gap being driven by news? (earnings, economic report, etc.)? No

3) Is the gap large enough (more than 1 or 2 points) for me to trade? Yes.

4) Is volume reading on the future indicating there is a lot of support for the gap at the open? No

All four criteria are met, BUT…I still lose on the trade. Frustrating: YES. Uncommon: NO. But if you are going to trade like this, you can expect for this to happen from time to time. Part of the game, and the reality of a trader.