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Two ways a gap down plays out
Set Gap (%) to a maximum of -3 and the list shows stocks down 3% or more from yesterday’s close. From there, two alerts split the list:
Keeps falling.False Gap Down Retracement fires when a gap down bounces partway toward the close, then rolls over and keeps going lower. It usually fires no more than once per stock per day.
Turns around.Gap Down Reversal fires the first time price climbs back through yesterday’s close, and it shows how big the gap was.
Example numbers, not a real trade
Gap down: bounce that fails vs full reversal. Example numbers, not a real trade.
Add Relative Volume so a quiet drift lower doesn’t crowd out real selling. Short sellers and dip buyers read the same list from opposite sides.
Reading a gap down before you act
A stock that opens down 8% is not automatically a short, and it is not automatically a bargain either. The first thing to sort out is why it dropped, because the reason tends to shape the rest of the day.
Company news. Missed earnings, cut guidance, a failed drug study. These gaps often keep sliding, because big holders take more than one morning to get out.
Sector or market news. A rate surprise or a peer’s bad report drags the whole group lower. These are more likely to bounce once the panic wears off.
Offering or dilution. Small caps that announce a stock sale often open lower and drift toward the offering price.
A working recipe a lot of traders start from: gap of -4% or worse, at least 200,000 shares premarket, relative volume of 2 or more, price over $5 so the spreads aren’t brutal. Then sort by the size of the gap and read the headlines from the top down.
Key point
Example, numbers made up. A $60 stock guides lower after the close and opens at $54, down 10%. It bounces to $56.20 by 9:50, which is still well under the $60 close, then stalls. At 10:25 it breaks back under $54 and the false gap down retracement alert fires. A short seller might use the $56.20 bounce high as the line in the sand. A dip buyer looking at the same chart waits, because nothing has turned yet.
Now flip it. Same $60 stock, but it is down with the whole sector on a rate scare. It opens at $55.50, holds $55 for twenty minutes, then climbs. At 11:15 it trades back through $60 and the gap down reversal alert tells you the gap is gone. Same filter, opposite story.
Key point
Gap downs move fast and the spreads widen at the open. Give the first five minutes a chance to settle unless you have done this a lot. And keep your size smaller than you would on a gap up, since sharp short squeezes happen on these too.
A few things to skip on the gap down list. Stocks under a dollar with wide spreads, because a ten cent spread on a fifty cent stock eats your edge alive. Names with no volume, since the price can jump around without anybody really trading. And anything halted or about to report again. Filter those out once, save the scan, and your morning list gets a lot cleaner without any extra work on your part.
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Gap down scanner questions
What traders ask about stocks that open lower.
What is a gap down?
A stock that opens below the prior day’s close. A $48 stock opening at $44.60 gapped down $3.40, about 7%.
Do gap downs usually fill?
Some do, many don’t, and it varies by stock and day. That is why the scanner splits them: one alert for gaps that keep falling, another for gaps that reverse through the close.
Can I scan gap downs premarket?
Yes. The gap filters read the latest premarket print before the open, so the list builds before 9:30.
Should I short every big gap down?
No. Plenty of gap downs reverse, especially when the drop came from the market and not the company. The scanner shows which way it is going; the decision is yours.
