Strategy · Mean Reversion
OVERNIGHT GAP FADE
NeutralDefined riskIntermediate
Overview
Fade large overnight gaps in the E-minis when there is no fresh catalyst. Statistical edge: the majority of opening gaps partially fill during the cash session.
Setup
- 1.Identify a gap of >0.5% versus the prior cash close, with no major news overnight.
- 2.Wait for the first 5-15 minutes of cash trading to confirm rejection of the gap.
- 3.Enter against the gap direction at the failed-test signal bar.
- 4.Stop just beyond the overnight high (or low for an upward gap).
- 5.Target the prior cash close (full gap fill) for first profit-take.
- 6.Trail the stop to the entry once 50% of the gap is filled.
Max profit
Distance from entry to gap fill; ~70% of gaps fill the same day.
Max loss
Stop distance × position size.
Breakeven
Entry price plus commissions.
When to use
On news-light days when overnight moves are driven by thin liquidity.
When to avoid
On scheduled-news days, earnings season opens, or when gap aligns with a multi-day trend.