Gaps Trading - Too Good To Be True?

L

lightrader

Hi , I recently read in the web a few stories of people that claim to make a lot of money in gap day trading strategies (about 1-2% per day on average, net of commissions and losing trades).

This sounds to me as too good to be true and I'm not sure as to the reliability of such stories.

I would appreciate if you let me know from your experience whether gaps day trading is indeed so proftiable and what is the average annual return, drawdowns and std. I know that there are probably different gap strategies and the return may defer from one to another (as well as depending on the trader's own skills), but I want to get a rough sense as to whether it's a 10-15% p.a. strategy if implemented successfully or much more than that, as implied by such stories (taking into account both good and bad years, net of commissions).

Thanks in advance!
 
Yes, gap strategies allow for excellent opportunities. You'll do well to study the various gap setups and strategies, and test them at length. One of my favorites is when a heavily shorted stock gaps up on good news (or on "less bad than expected" news). These tend to run most of the day.

Study the price action following gaps to determine the best entry method for your risk:reward appetite.
 
Quote from NoDoji:

Yes, gap strategies allow for excellent opportunities. You'll do well to study the various gap setups and strategies, and test them at length. One of my favorites is when a heavily shorted stock gaps up on good news (or on "less bad than expected" news). These tend to run most of the day.

Study the price action following gaps to determine the best entry method for your risk:reward appetite.
More...

Thanks for the response.

If you or someone else here have any links to materials from which I can learn more about successful gaps trading I will appreciate if you can post them.

Also, I will be happy to see any reliable data as to REAL returns acheived through a period of a few years by successfully using gaps trading strategies.
 
Quote from lightrader:



Also, I will be happy to see any reliable data as to REAL returns acheived through a period of a few years by successfully using gaps trading strategies.
More...

You will learn more testing it yourself, nobody is going to hand you anything, especially on ET!

http://www.masterthegap.com

Saw a webinar awhile back on this, looks interesting, trades futures from my understanding.

Pristine also offers a Gap Trading course, don't know much about it. Good luck
 
Quote from lightrader:

Thanks for the response.

If you or someone else here have any links to materials from which I can learn more about successful gaps trading I will appreciate if you can post them.

Also, I will be happy to see any reliable data as to REAL returns acheived through a period of a few years by successfully using gaps trading strategies.
More...

You need to do your own work.

But I'll give you one clue.

Classify gaps in term of their magnitude.

For example, a gap that opens OUTSIDE yesterday's range, may be considered a large gap. In combination with other supporting factors, these MAY have a high probability of continuing in the direction of the gap.

A gap opening inside yesterday's range and not to close to the H/L may be considered a small one and have more probability of filling on that day.

Just an idea.

Look into it.
 
Quote from gmst:

i can teach you gap trading that will actually make you dollars ... how much u willing to pay?
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Put it in an e-book and publish it here on ET, gratis.

Bouchaud has repeatedly published methods that have made him billions, surely you can afford to publish methods that have make you, what, hundreds? Ditto the very generous and helpful Jack Hershey, although Bouchaud's methods and equations are much much easier to parse and understand.
 
Quote from Kevin Schmit:

Put it in an e-book and publish it here on ET, gratis.

Bouchaud has repeatedly published methods that have made him billions, surely you can afford to publish methods that have make you, what, hundreds? Ditto the very generous and helpful Jack Hershey, although Bouchaud's methods and equations are much much easier to parse and understand.
More...

My methods have made me 1000s not hundreds :) Actually now that you say it, I will be open to publish them on ET someday.

Do you have links where Bouchaud has published his methods?
 
Quote from gmst:

My methods have made me 1000s not hundreds :) Actually now that you say it, I will be open to publish them on ET someday.

Do you have links where Bouchaud has published his methods?
More...

He has a column in a monthlynewsletter; as I remember it is a place called Leavenworth (sp).
 
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