Overview
This lecture explains the Smart Money Concept of the Opening Range Gap, detailing its identification, classification, measurement, and trading strategies for the 2025 model using regular trading hours.
Defining the Opening Range Gap
- Opening Range Gap is defined by comparing the previous day's 4:14 p.m. Eastern settlement price to the next day's 9:30 a.m. Eastern opening price, using regular trading hours only.
- Regular trading hours (RTH) must be set on the chart, not electronic trading hours; time zone must be New York.
- The gap is measured on a one-minute chart between these two RTH time points.
Classifying Gaps: Premium vs. Discount
- A gap higher at 9:30 a.m. than the previous day's 4:14 p.m. is a Premium Opening Range Gap.
- A gap lower at 9:30 a.m. than the previous day's 4:14 p.m. is a Discount Opening Range Gap.
- Handle ranges: 20-75 (likely to fill), 75-120 (flexible), 120+ (more likely to remain unfilled initially).
Calculating and Using Quadrants
- Use Fibonacci retracement from the previous day's settlement to the current day's opening for premium gaps (reverse for discount gaps).
- Key levels: 25% (upper/lower quadrant), 50% (consequent encroachment/mid-gap), and 100% (full gap fill).
- Large gaps (>120 handles) often only partially fill (to upper/lower quadrant).
Trading Rules and Scenarios
- For premium gaps, initially look for price to run buy-side liquidity in premarket (6:00-9:30 a.m.).
- Watch for price to revert to key quadrants or mid-gap; full closure less likely in large gaps.
- For gaps <75 handles, price often returns to mid-gap.
- For gaps 75-120 handles, use other analysis (e.g., economic calendar, market structure) to decide direction.
- Each trading day can create new gaps to track and use as support/resistance.
Liquidity Voids and Chart Practices
- An Opening Range Gap is a true liquidity void: no trading occurs there in regular trading hours.
- Highlight and follow all current gaps on regular trading hours charts; ignore gaps from electronic hours for this model.
Key Terms & Definitions
- Opening Range Gap — The price difference between prior day's 4:14 p.m. RTH close and the next day's 9:30 a.m. RTH open.
- Premium Gap — RTH opens higher than the prior day's close.
- Discount Gap — RTH opens lower than the prior day's close.
- Quadrants — The divisions of the gap (upper, mid/consequent encroachment, lower) used for targeting.
- Liquidity Void — A price area with no RTH trading activity.
- Consequent Encroachment — The 50% midpoint of the opening range gap.
Action Items / Next Steps
- Ensure your charts show regular trading hours and are set to New York time.
- Practice drawing Fibonacci retracements on opening range gaps with correct anchor points.
- Track and label all opening range gaps and quadrants on your RTH chart.
- Prepare to review and apply additional rule refinements before the end of the month.