Overnight Gap Fade on ES
Most overnight gaps in the S&P index futures fill during the regular session. Absent a fundamental catalyst, the gap is noise from thin overnight liquidity, and the consensus price reasserts itself once the deep daytime book opens.
Setup & Rules
Fade only 'ordinary' gaps within a normal ATR band, and only when no scheduled macro release or overnight headline explains them. A gap with a reason is a trend, not a fade.
Entry
At the cash open, enter counter to the gap direction once the first 5-minute bar fails to extend. Let the market show it cannot follow through before you commit.
Exit
Primary target is the prior close (full gap fill). Take partials at the halfway fill and trail the remainder. Flat by the close — this is strictly intraday.
Risk Management
Stop beyond the gap extreme. The rare 'gap-and-go' trend day is the account-killer; a hard stop and a one-and-done daily rule prevent revenge-fading a real move.
Portfolio Management
A steady base-hit satellite with a high strike rate and small average winner. It pairs poorly with other mean-reversion sleeves on the same underlying — diversify the driver, not just the ticker.
Evidence
61% fill rate on ordinary gaps, average +0.5R, conviction steady over the trailing window. Edge degrades on high-VIX days, which the ATR filter is designed to exclude.
Flywheel Automation
Runs on Tradovate at the cash open with a hard flat-by-close guardrail. Latency-tolerant, so downtime cost is moderate — a missed day is a missed base hit, not a disaster.