The gap up

A genuine gap up on real volume is a sign that a meaningful shift in supply and demand happened overnight, all at once, rather than gradually over a session. When that shift is grounded in a real prior base rather than an isolated news reaction, the move behind it tends to have real continuation in it, the same underlying stair-step behavior covered in the Triangle guide, just compressed into a single session instead of building visibly over days or weeks.

This is exactly why the base matters as much as the gap itself. A gap with no real structure behind it has nothing anchoring the move once the initial excitement fades. A gap breaking a stock cleanly out of a real base is a different, more durable signal.

Triangle and HTF are both about watching a structure build over time, a converging range, a pole and a flag, and waiting for that structure to resolve. A Gap Up is different. The setup and the trigger happen at almost the same moment, a stock opens meaningfully above its prior close, on real volume, breaking cleanly out of whatever base or consolidation it was sitting in.

This matters because it changes what a trader is actually watching for. With Triangle and HTF, most of the work is in the days or weeks leading up to the breakout, recognizing the structure as it forms. With a Gap Up, the structure that matters, the prior base, is already in place before the gap happens, and the actual signal arrives all at once, at the open, rather than building gradually into a confirmed close.

Gap Up setups are, by nature, the hardest of the three patterns to see coming, since the actual signal only arrives at the open. What can be done in advance is narrowing the field of candidates: the same relative-strength scan used for Triangle and HTF, the small handful of stocks showing the strongest performance over the past one, three, and six months, plus a check for a genuine base or consolidation already sitting in place.

A stock already showing real leadership, sitting in a clean base, is a far more likely candidate for a gap that holds than one pulled at random from a scanner the morning after it already happened.

Unlike Triangle and HTF, there is no waiting for a confirmed close through a trendline here, the gap itself is the trigger. The entry is taken on the open, or shortly after, once the gap has been confirmed as genuine, real volume, a real prior base, not a reaction to scheduled news alone.

Because the entire signal arrives in a single session, there is less room to wait for additional confirmation than with the other two setups. This is exactly why the volume and base checks from the four conditions above have to be run quickly and mechanically, rather than skipped in the rush of an exciting opening move.

A real example: Eternal Limited, daily chart, entry taken directly at the day's open on the gap, with the previous day's high used as the stop reference. Worth being honest about where these setups actually show up: in practice, the cleanest gaps tend to appear around earnings days specifically, not despite them. A 10% gap is the textbook threshold, but genuinely rare. A 5% gap on real volume, backed by the base and volume conditions above, is a reasonable, more realistic bar in practice.

The stop typically sits below the gap itself, or below the prior day's close if the gap has partially filled, which can mean a wider stop distance than a trendline-based setup usually requires. A common, simple reference: the previous day's high, used as the stop against a day-open entry, as shown in the Eternal Limited example above. This makes getting position sizing right, from that wider stop distance, especially important, covered in full in the Risk Management block of Trading Foundations.

Once the position is open, the same partial-exit and trailing approach covered in the Triangle and HTF guides applies here too: a portion sold as the move develops, the remainder trailed on the 10-day or 20-day moving average rather than exited all at once on the first sign of a pause.