Gaps

NihabaAshi,

Basically I'll enter the trade with a target at the close, with a stop of twice that, so I'm risking 2 points to make one. The exact level of the stop is gets modified by the proximity to resistance/support etc... but usually I start off risking 2 or 1.5 per point. From that point on I allow myself to scale in twice more if the trade moves against me, but I never change my stop. So the risk/reward ratio improves. Anyways this is all kinda factored in with my money management rules primarily the largest loss I'm willing to take in a day, etc.. If I feel I need to place the stop so far out that I'd exceed my max loss I simply don't take the trade.
well thats my theory anyways, I'm still psychologically conditioning myself that the odds are the gap will fill I find myself getting twitchy as soon as I'm showing a profit on it.

Oh and yeah I was talking about the mini-dow YM.

-doji
 
Today's winner is the m-Russell. This was a tough one as the GAP did not completely fill in the morning. You may have either bailed out when the GAP did not fill by the 10:00 candle or you could have been in a loss position with much needed faith. Many times when there is news like this morning, the GAP will not fill right away. The bears just couldn't trap everyone right away. Bulls ruled until late morning. Then the double top formed and the bottom fell out as bulls caved in......and yes down we went to fill the gap. Price quickly reversed at this point and then climbed on back up. GOD KNOWS WHY (but that's a different issue). If you got in on the DT somewhere, you made some nice profit here.

We should call this one the news GAP, this is a fairly typical GAP pattern on days like today.
 

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I wanted to post this one because I find this situation quite frequently with the BONDS.

The reversal started back towards the open GAP from yesterday, but did not fill. The GAP closed easily after yesterdays close. Same situation is there today. If the open GAP created today fills on Monday morning there will be some nice profit here. It should be interesting to see. The GAP fill would be a 78.6% retrace of the swing hi/lo.

There is also a GAP open above at 113 10/32.
 

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Quote from doji:

NihabaAshi,

Basically I'll enter the trade with a target at the close, with a stop of twice that, so I'm risking 2 points to make one. The exact level of the stop is gets modified by the proximity to resistance/support etc... but usually I start off risking 2 or 1.5 per point. From that point on I allow myself to scale in twice more if the trade moves against me, but I never change my stop. So the risk/reward ratio improves. Anyways this is all kinda factored in with my money management rules primarily the largest loss I'm willing to take in a day, etc.. If I feel I need to place the stop so far out that I'd exceed my max loss I simply don't take the trade.
well thats my theory anyways, I'm still psychologically conditioning myself that the odds are the gap will fill I find myself getting twitchy as soon as I'm showing a profit on it.

Oh and yeah I was talking about the mini-dow YM.

-doji
More...

Hi Doji,

Thanks for the reply. I've never done any specific stats like a few of the ones I've seen posted here at ET about the odds of Gaps filling...

Yet, I do know one thing...divergence signals (indicators or price action only) will more often than not be the catalyst towards a gap fill.

(Note: There's other trade signals to help get in on a possible gap fill...divergence just works well for me)

At worst...the trader still walks away with some points via good trailing stop management if the price reverses after a failed attempt to fill a Gap...

example is the ES gap between Feb 13th Friday and Feb 17th Tuesday (Monday was a holiday).

Good luck

NihabaAshi
 
Quote from NihabaAshi:


Yet, I do know one thing...divergence signals (indicators or price action only) will more often than not be the catalyst towards a gap fill.
NihabaAshi
More...

NihabaAshi, can you please explain and/or give an example of
what you consider to be a price action only divergence signal?
I see you mention this quite frequently and would be thankful
to you if you could answer this.

V77
 
Quote from VisionTrader:

I wanted to post this one because I find this situation quite frequently with the BONDS.

The reversal started back towards the open GAP from yesterday, but did not fill. The GAP closed easily after yesterdays close. Same situation is there today. If the open GAP created today fills on Monday morning there will be some nice profit here. It should be interesting to see. The GAP fill would be a 78.6% retrace of the swing hi/lo.

There is also a GAP open above at 113 10/32.
More...

Just thought I'd post a follow on to this, as your chart confused me when I saw the gap and the high of 114 2/32. It appears your chart is of the old pit session but with the electronic session prices for the feed. If you compare this to my chart, on the left is the electronic session where there is no gap as it traded during European time, and on the right is the floor only session (note the high here is 113 28/32) where the gap is shown. With market hours becoming longer, the session gaps are becoming less relevant I feel. Especially as the floor now accounts for less than 10% of total daily traded volume for cbot treasuries. I will add one caveat to that, the volume on the floor friday was higher than this 10% figure but this was only down to the roll taking place, and from monday June will be the liquid month. I am not making any prediction as to if we will see the session gap closed monday though :p
 

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Quote from version77:

NihabaAshi, can you please explain and/or give an example of
what you consider to be a price action only divergence signal?
I see you mention this quite frequently and would be thankful
to you if you could answer this.

V77
More...

Hi version77,

Your probably referring to posts like this...

http://www.elitetrader.com/vb/showthread.php?s=&threadid=23567&perpage=5&pagenumber=2

http://www.elitetrader.com/vb/showthread.php?s=&threadid=27743&perpage=5&pagenumber=5

From the post above and others by me in the past here at ET...

Here are some key basic components to my use of divergence within different types of price action only signals:

1. Intraday Japanese Candlestick Pattern Analsysis...

Review my past posts to see what specific candlestick patterns I key in on.

2. Volume Analysis...

Rising Long Upper candlestick shadows and declining volume...divergence.

Declining Long Lower candlestick shadows and rising volume...divergence.

3. Profit targets via either or in combo...pivot point analysis or candlestick s/r levels (wide range candlesticks).

4. Market Breadth Analysis...

VXN, VIX, NYSE TICK and Nasdaq TICK.

Note: There are lots of other Market Breadth Index...the ones above fits well with my trade methodology.
___________

As for my specific trade management rules (entry strategy, initial stop/loss rules, trailing stop rules, exit strategy and contingency plan)...

I would need to start a thread on the subject here...something I'm unwilling to do.

NihabaAshi
 
visiontrader,

when you are looking at gaps to play do you target the nearest gap? For example, YM gapped up 30-40 yesterday, didn't fill and today it looks like it will open down about 20, would you look at yesterdays gap filling to 10586 or todays gap filling to 10675?

Sort of tangentially how do you determine how much to risk when you play a gap? I know from studying my MAE and MFE that for me anything less than 2:1 will stop me out more times than not then run in my favor. At the same time no one wants to be holding out for that gap that takes years to fill.

-doji
 
Quote from NihabaAshi:

Hi version77,

Your probably referring to posts like this...


NihabaAshi
More...

Snip...


NihabaAshi,

Thank you very much for your reply. I am sorry I have not replied
to your post sooner, I just received the "Gaps" forward post in my
email this morning. You have answered my post as well as I could
of ever expected. You are very generous here at ET.

I have reviewed your past posts and have cataloged many of
them as they are very good. I also thank you for all of your posts
where you have included charts. Your charts contain a wealth of
information.

Your volume analysis price/divergence is something I don't
remember you mentioning before. This will be a big help. Point #3
that you mention above is also very interesting...

Once again, thank you for your answers.... :)
 
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