Introduction
how to short small cap gap and crap strategy is exactly what I walk through here in first person, sharing my rules, VWAP-based entries, and risk management on small caps that gap big, fade premarket, then push to VWAP and fail. I’m Craig aka The Tatted Trader, and this is my go-to short setup for beginners who work a real job.
Trader Talks QnA
Why do you like this strategy for beginners?
I like it because risk is everything, and this setup is relatively lower risk for small caps. It’s less volatile than chasing parabolic reversals, it’s easy to recognize on the chart, and most of the action happens in the first hour so new traders who aren’t full-time can still trade it.
What fundamentals do you look for before taking the trade?
I look for institutional ownership under 50% (under 40% is even better), market cap ideally under $200M, and a premarket gap of at least 30% by the open. From the premarket high to the open, I want a pullback of at least 15%—20–25% is even better. Price is typically $10 or less.
Is this a short or long strategy?
This is a short setup. I short almost everything in small caps; I don’t run a long strategy here.
When must the setup happen during the day?
Ideally in the first 30 minutes; I allow up to the first hour. My cutoff is 11:00 a.m. market time—after that, win rate drops significantly, and it’s off the table for me.
What is the core pattern—what are you looking for?
I call it gap and crap: a huge premarket run, then a fade before the open, opening as a strong gapper (30%+), and then a push to VWAP in the first 30–60 minutes that fails. I enter near VWAP, risk about 5–6%, and target 10–12% for about 2:1. If it consolidates above VWAP—major red flag and I’m usually out, especially near 11:00.
What’s your backtested performance for this setup?
My win rate is just shy of 80%, average winner ~11%, average loser ~4%, about 2:1 risk-reward. It doesn’t show up every day, but usually a few times per week. I tracked it relentlessly for years and still journal every trade.
Do you use indicators?
VWAP is the only indicator I need for this setup. I keep it simple. I used to take profits at EMAs but found no significant edge there—now I stick to defined risk-reward targets.
How strict are you about the 11:00 a.m. cutoff?
If you’re new, be black-and-white: cut off at 10:30. If you’re seasoned, you can dabble between 10:45–11:15 with tighter risk—either it works quickly or it doesn’t. After 11:00, win rate drops a lot. If I’m still in near 11:00 and it’s consolidating above or around VWAP, I usually cut. If it’s below, I’ll lower my stop and keep the target.
How do you handle entries and scaling?
I’m usually two entries to get full size, typically into the push toward VWAP. I often set a limit order at VWAP to keep me honest so I don’t jump in early. I prefer entries as close to VWAP as possible. I aim for 5–6% risk for ~10–12% reward; if range is massive, I may risk up to 10% to target ~30%.
Do daily chart levels matter to you?
Yes—clear pivots on the daily are huge for me. If VWAP aligns with a major daily resistance level and the gap/fade criteria are met, that’s an A+ confluence for entry. Daily levels are at the top of my decision-making.
What about low floaters—any special caution?
Low floaters can rip or dump fast and can skip stops due to halts. Early in my career, I avoided sub-5M float; as I got more reps, I went to 4M, 3M, 2M, even sub-1M at times—but that’s advanced. Use tight risk and smart sizing. Halts can skip stops, so size with that in mind.
How should small accounts or PDT-limited traders approach this?
This setup is great for PDT because it doesn’t present daily. You might take 3–5 trades a week. Brokers with short access under PDT exist. With small accounts (e.g., $2,000), I’ve gone all-in with tight risk to grow—but you must respect risk. Also, locates on these non-hot tickers are usually cheaper and more available.
What’s the biggest mistake new traders make on this setup?
Getting antsy around VWAP and not being okay with temporary heat. People bail before their stop when P&L goes red, or they take profits early when it ticks green—then miss the bigger fade. Your stats only matter if you stick to your stop and target. Be patient on exits, not just entries.
Any guidance when price retests VWAP and chops?
Expect retests. More charts look like VWAP touch, small fail, retest, then major fail—than picture-perfect instant fails. Set your predefined stop and target and let it work. If it consolidates above VWAP or it’s pushing 11:00, I’m out or I tighten up.
Craig (The Tatted Trader) Trade Statistics
Here’s how I frame the performance and execution of this specific short setup before 11:00 a.m. market time.
- Win rate: just shy of ~80% (from extensive tracking)
- Average winner: ~11%
- Average loser: ~4%
- Typical risk-reward: ~2:1 (risk 5–6% to make 10–12%)
Key Trading Insights from Craig
My main takeaways for this setup: focus on the premarket gap and fade, time the VWAP push fail early, and manage risk tightly. New traders should keep a hard time cutoff and let the plan work.
- Premarket gap 30%+ and 15%+ pullback from premarket high to open.
- Enter near VWAP on the first push; exit quickly if consolidating above VWAP.
- Keep a hard cutoff (new traders: 10:30 a.m.; experienced: around 11:00 a.m.).
- Stick to stops/targets so stats remain valid.
Craig Trading Strategy
I keep this simple: identify the gap and crap, wait for the first-hour VWAP push, and short into or around VWAP with predefined risk and target. The daily chart matters for confluence, and I avoid midday chop.
Gap and Crap VWAP Push Fail Short
Criteria: Market cap <= ~$200M, IO < 50% (prefer < 40%), gap 30%+ by open, 15%+ retrace from premarket high to open, price $10 or less. Execution: Wait for first 30–60 min push to VWAP, enter short near VWAP, risk ~5–6% (up to 10% if massive range), target 10–12% or more. Invalidation: Consolidation above VWAP or setup forms after 11:00 a.m.
Craig Tools
I trade on Das for executions, chart in ThinkorSwim, and journal in TraderSync. For data/backtesting, I’ve used Spiky and spreadsheets. I also monitor fundamentals via Flash SEC.
- Das (execution platform)
- ThinkorSwim (charting)
- TraderSync (journaling)
- Spiky (data/backtesting aid)
Common Trading Mistakes to Avoid
Key warnings from my experience: don’t chase early, don’t ignore the cutoff, respect halts/low-float risk, and don’t change your plan mid-trade. Paper trade or use small size until you build your playbook.
- Getting in early before VWAP and ruining risk-reward.
- Holding into consolidation above VWAP or past 11:00 a.m.
- Ignoring low-float halt risk and oversizing.
- Taking profits too early and cutting losses too early—invalidates stats.
Conclusion
This gap and crap VWAP push fail short is beginner-friendly, time-bounded, and focused on risk. Test it, journal it, and stick to your stops and targets. Drop questions in the comments and consider subscribing to stay updated on more strategy breakdowns.