gaps and trading

[monty21]

If a stock is gapped up and the futures go up from the open, it is unlikely that the gap will fill.

Conversely, if a stock is gapped down and the futures go down, the gap will usually not fill either.

Apparently this is a more of a 90s phenomenon whereas the specialists could manipulate the price by opening up/down at much more extreme levels. Now, the specialists gap stocks much more on customer orders and not artificially for the benefit of their own accounts.

One exception with my thinking is that it applies to the more liquid and heavier traded stocks..like S&P 500 stocks. I don't track small Russell stocks, so I'm not sure about their case. But artificial manipulation is obviously much easier on thinly traded companies on scare orders.

 

[NoDoji]

Quote from gastropod:

I have seen times where what looks like market manipulation takes place - where a SINGLE crossed order is placed (and filled) way below the market and then an order is rapidly placed (and filled) back at what was the market. It looks to me like that sort of maneuver was done to make certain program type orders kick in - like stop limit orders. That info and $1.00 will get you a cup of coffee ;-)
-gastropod

I see this all the time - a 100-share lot prints at some crazy price that leaves a wick on the bar, but doesn't affect the bid/ask at all. I've asked around how that happens, but haven't yet gotten a firm answer. I've never had this trigger a hard stop, and I've been told by my broker that stops are triggered by the best bid or ask price, not by a print at a different price.

The other thing I see all the time is after-hours prints at prices having nothing to do with the bid or ask. I had an after hours bid to cover a short position at 28.02, while the best ask was 28.24, and I got a 100-share fill at my price. Then suddenly a large lot was sold @ 28.13, then some smaller lots at 24.18. The whole time the ask remained at 28.24. So I imagine after hours trading does not involve a lot of transparency.

 

[NY0BScalper]

Quote from NoDoji:

I see this all the time - a 100-share lot prints at some crazy price that leaves a wick on the bar, but doesn't affect the bid/ask at all. I've asked around how that happens, but haven't yet gotten a firm answer. I've never had this trigger a hard stop, and I've been told by my broker that stops are triggered by the best bid or ask price, not by a print at a different price.

The other thing I see all the time is after-hours prints at prices having nothing to do with the bid or ask. I had an after hours bid to cover a short position at 28.02, while the best ask was 28.24, and I got a 100-share fill at my price. Then suddenly a large lot was sold @ 28.13, then some smaller lots at 24.18. The whole time the ask remained at 28.24. So I imagine after hours trading does not involve a lot of transparency.

Often those prints you see are prints that went off during the day but haven't yet hit the tape, so in the AH they report them. "Late prints" is the term.

 

[mdl060374]

Quote from NoDoji:

I see this all the time - a 100-share lot prints at some crazy price that leaves a wick on the bar, but doesn't affect the bid/ask at all. I've asked around how that happens, but haven't yet gotten a firm answer. I've never had this trigger a hard stop, and I've been told by my broker that stops are triggered by the best bid or ask price, not by a print at a different price.

The other thing I see all the time is after-hours prints at prices having nothing to do with the bid or ask. I had an after hours bid to cover a short position at 28.02, while the best ask was 28.24, and I got a 100-share fill at my price. Then suddenly a large lot was sold @ 28.13, then some smaller lots at 24.18. The whole time the ask remained at 28.24. So I imagine after hours trading does not involve a lot of transparency.

I noticed this also, and this drives me insane.. I developed a statistical strategy based off of gap behavior, and these erroneous prints basically destroyed its results..

I love how the SEC and the NASD are all about "fair and accurate" reporting of trades, yet base the open off of 141 shares trading .50 from where the stock naturally opens...Its a load of crap.
And unfortuantely Tradestation only works on a minute time fame, so you cant exclude these initial seconds from its analysis.

 

[mdl060374]

Quote from Trvlwanderer:

Here is the statistical scan that shows percent fills etc.

Plug into stickfetcher

* gap fill statistics */

set{Xgapped, open - close 1 day ago}
set{Xgapup, count(Xgapped > 0, 1)}
set{Xgapdn, count(Xgapped < 0, 1)}

set{absgap, abs(Xgapped)}

set{gappedup100, count(Xgapup > 0, 100)}
set{gappeddn100, count(Xgapdn > 0, 100)}

set{cl1lo, close 1 day ago - low}
set{hicl1, high - close 1 day ago }

set{fillup, count(cl1lo > 0, 1)}
set{filldn, count(hicl1 > 0, 1)}

set{gapupfilled, Xgapup * fillup }
set{gapdnfilled, Xgapdn * filldn }

set{gapup100f, count(gapupfilled > 0, 100)}
set{gapdn100f, count(gapdnfilled > 0, 100)}

set{gapfilled, gapup100f + gapdn100f}

/* DRAW PLOTS */

DRAW XGAPPED ON PLOT XGAPPED

/* DISPLAY COLUMNS */

and add column gappedup100
and add column gappeddn100
and add column gapfilled
and add column gapup100f
and add column gapdn100f

and add column cma(absgap, 100)
and add column absgap 100 day high
and add column absgap 100 day low

/* SELECTION CRITERIA */

CLOSE ABOVE 35
AVERAGE VOLUME(90) ABOVE 2000000

/* SORT CRITERIA */

SORT COLUMN 7 DESCENDING

Original work created by TheRumpledOne

I basically took this idea, and attempted to break it down into statistics based off of the first 5-20 minutes of trading..

To me, knowing AAPL fills the gap 90% of the time didnt do me much good, if the stock trades in $3 ranges and no time study was done.. In other words, where do you enter and how long to you hold to position yourself to profit?

 

[Trvlwanderer]

Quote from mdl060374:

I basically took this idea, and attempted to break it down into statistics based off of the first 5-20 minutes of trading..

To me, knowing AAPL fills the gap 90% of the time didnt do me much good, if the stock trades in $3 ranges and no time study was done.. In other words, where do you enter and how long to you hold to position yourself to profit?

I looked at the same in an attempt to automate. Impossible in my opinion. This is a discretionary trade.

I trade 3 intra-day strategies...opening gap fills are 1 of them.

Some things to consider in determing entry/exit:

previous hi-lo
previous close
strong s/r levels on the dailes.

I do not look for the entire gap range, only a percentage or a discretionary level based on the considerations above.

r/r must be determined which allows for an easy placement of mental stop.

Also stack the odds in your favor....way overbought and gaps down?...market turning up....good probabilitiy it will fill.

 

[Trvlwanderer]

see if RIMM gaps down while futures show a potential higher open.

 

[mdl060374]

Quote from Trvlwanderer:

I looked at the same in an attempt to automate. Impossible in my opinion. This is a discretionary trade.

I trade 3 intra-day strategies...opening gap fills are 1 of them.

Some things to consider in determing entry/exit:

previous hi-lo
previous close
strong s/r levels on the dailes.

I do not look for the entire gap range, only a percentage or a discretionary level based on the considerations above.

r/r must be determined which allows for an easy placement of mental stop.

Also stack the odds in your favor....way overbought and gaps down?...market turning up....good probabilitiy it will fill.

That is actually and interesting point.. I guess my idea of playing the opening gap always involved a large amount of symbols (spreadsheet) and automation, but using a more stock specific discretionary approach could be a good idea.

 

[shortie]

Quote from riskfreetrading:

You may have read that most of the gaps fill (some even say are filled as if someone decides to fill them).

What is the percentage of gaps that fill?

Why is that percentage large (assuming it is true)?

How do you trade them?

How long does it take before a gap is filled?

I find gaps fascinating because it is one of the rare aspects of a market that can easily test any theoretical understanding one may have about markets.

in "trade like a hedge fund" altucher states that gap fill is bread and butter for traders and hedge funds. you can read some of it online:

http://books.google.com/books?lr=&q=fade+gap+hedge&btnG=Search+Books

the main points from his book:
gaps fill 80% of the time

gaps should be faded (but not all of them)

the bigger the gap the better for fading

shorting the gap up is much trickier than going long the gap down.

 

[cashmoney69]

I currently am studying gaps, and found that of the gaps i studied so far only 20% of the gaps will fill in a 30 day period.

anyone thats intereste hit me up on skype and i'll send you the files of all the gaps.

I also figured that if you had 100k, and bought every gap up at the open, and held for a 12% gain or for a 5 day period, you'd be up 67% (67,000 profit!)

well here look for yourself