Gap Fill Probability Study

I just discovered this interesting graph from Finviz.com (under the Services section) regarding probabilities of a daily gap filling.

While they don’t discuss their methods or the period observed, the main idea of the study is two points:

The probability of an overnight gap being filled increases as days progress;

The larger the gap, the lower the probability that it will fill.

Let’s look at their chart (courtesy Finviz.com Services):

Therefore, the probability of a gap being filled is a function of the size of the gap and the time after the gap occurs.

To show the extremes in the data, a gap of size 5-10% move has a 70% chance of filling within 5 days, but a near 90% chance of filling after 50 days.

A gap size of 35-40% has a 15% chance of filling within 5 days and a 40% chance of filling after 50 days.

Again, please be aware of the caveats of this study:

We do not know which stocks (or groups of stocks) were used; we do not know if these were upside or downside gaps; we do not know when the study was created; we do not know the number of occurrences per each percentage range; and other concerns.

This chart may be enough to get you thinking about how to view a gap, but I would encourage you to test your own data for a more accurate probability of the gap filling strategy.

I assume this graph is used to get you familiar with the kind of service or research this company does, and is just a sample only. As such, don’t take this chart as absolute certainty – but only as a foundation to build ideas and test your own strategy.