Quote from Bankedout:
When you are 5 points ahead you move the stop to breakeven. Any comments on why you chose this rule?
In case I lose connectivity.
Also the gap issues. I'm presuming the gap would be calculated by closing price of the cash market to opening price of the cash market. If it gaps at least one percent, the entry opportunity is after the first five minutes, as long as the gap does not exceed three percent. So on a 2% gap, how do you determine which direction to trade after the first 5 minutes?
Don't make it more complicated than it is. If the gap is less than 1%, there's really no place to go. In other words, if the gap is only five points, and you don't enter until price exceeds the range by two points, that leaves a potential reward of three points. If the stop is five points, you're nowhere near a reasonable r:r ratio. Of course, you could just exit the position when the gap is filled, but that's more of a scalp than a trend trade. Or you could tighten the stop. But, again, that makes it more of a scalp.
On the other hand, if the gap is 3% or more, price is likely to go nowhere afterward, so the probability isn't there, unless it's a Trap Gap, but these are rare. When those occur, forget about strategy and just climb on.
Brandon Frederickson did a study on these and found that (if I remember correctly) 70% of gaps filled on the same day, but that as they grew larger, the percentage fell dramatically (I believe only 35% of gaps of 3% or more filled the same day, and only 10% of 4% or more). Therefore, the probabilities lie with gaps of 3% or less. If the gap is very minor, you have to decide whether you want to close the trade when you reach your price target, or tighten your stop and let it run. If the latter, then you have to calculate your r:r.
If all of this is Greek to you, or sounds like too much trouble, then just skip it and trade the break of whatever range has been established as you approach 1000. I don't believe Mike or Natalie trade gaps at all. Rather they just let things run their course until 1000 or thereabouts rolls around. I do believe, though, that Mike commented that he doesn't like to trade in the direction of the gap, which is consistent with what I've found with gaps of 3% or more. My memory may be faulty here, though, and I don't want to have to go through all those posts to look for it.
If you have a backlog of intraday charts, this all becomes very clear very quickly. If you don't, start maintaining a record tomorrow.
OT: I read on another thread about lock limit days. I think I remember hearing about these somewhere, but I don't remember the criteria for E-Minis. Do you know offhand? It was suggested that one could use options to offset a position that is locked limit. Any ideas on how that would be done? This is the kind of thing I want to find out about ahead of time, instead of scrambling for a solution while under stress. (I'm new to trading this market).
That's one of the reasons I daytrade. I don't want to have to worry about that stuff. What I like about this strategy is that it requires so little thought. Few if any decisions have to be made (actually, the only decisions that have to be made at all have to do with the risk and probability of a reversal setup, but even there one can limit himself to only two or three).
--Db
