I think Matt would not mind me posting his reply, so here it is.

I'd say the gap should occur on an open generally however I would generally employ at least a 15 - 20 min gap rule to see how the gap behaves, because if gaps are going to be filled, the action over the first 15 - 20 min is generally telling.   Now the SPY system will sell an oversold bounce, just like the RSI 2 revision to the mean systems, so I'll leave that up to you, but generally even in bad trades those systems get out at better prices than what the bad trades are because of the bounce, however they are unable to get out without a bounce, and this can be a problem because if the market went into a free fall they will not exit.  

I'll let Steve fill in more since honestly, he's the one who came up with the term 'Gap of Recognition', therefore he might have more thoughts on this

thanks

Matt