Failed Gap Fill
Slippage on the order execution adds several cents to the entry. The momentum shifts toward a trend expansion, as the notes at orb trading glossary unescoghana describe. A failed gap fill happens when the price fails to return to the previous session close during the first fifteen minutes of regular trading hours. Instead of a retracement, the price holds the gap and initiates an opening range breakout. This setup occurs when the premarket sentiment is too strong for any mean reversion to take place at the cash open.
Mechanics of the Gap
A gap represents a void in liquidity between the overnight session close and the market open. In a failed gap fill, the price moves away from the gap level rather than toward it. This behavior indicates that the imbalance between buyers and sellers is accelerating. The price does not seek the previous day's close. Instead, it establishes a new direction. Traders watch the opening range to see if the price stays above or below the gap void. A failure to fill the gap often signals that the intraday trend will be unidirectional.
The Opening Range Breakout
The opening range breakout provides the signal that the gap will remain unfilled. Once the five minute range is established, the direction becomes clearer. If the price stays above the high of the first five minute candle, the gap is likely to remain open. This movement confirms that the premarket direction is being sustained through the cash open. The breakout serves as a mechanical trigger. The strength of the move depends on the volume present during the first hour of the session. A lack of volume during a gap fill attempt often precedes a rapid expansion in the opposite direction.
Timeframe Selection
Different traders use different methods to define the range. Using a fifteen minute range provides more stability but enters the trade later. A 5 minute candle setup offers faster entry but carries higher noise. The thirty minute range is common for capturing the meat of the daily move. Each timeframe requires a specific look at the price action around the opening bell. The failed gap fill is a momentum event. It relies on the price staying outside the initial volatility bounds. If the price enters the gap, the breakout setup is invalidated.
Execution and Volume
The volume profile during the opening range tells the story of the trend. High volume at the breakout point suggests the gap will stay open. Low volume near the gap edge suggests the move lacks conviction. The session high often forms after the initial breakout confirms the trend. Monitoring the price relative to the previous day's close is the primary task. If the price holds the gap, the expansion continues. The mechanics are simple. The price moves away from the void and stays there.