On "gaps"

[Bitstream]

Quote from jts:

In my experience, trading the assumption that a gap will be filled, or the opposite, are both profitable trading strategies (certainly for earnings gaps). The key is to consistently trade one way, either long or short, to profit. Personally I trade NYSE stocks long (assuming a gap won't be filled), NASDAQ short (assuming gap will be filled). Both work well, however there are times where there are a string of losses that have to be traded through. Consistency of approach - the market never stays the same and the good times do return (often when you least expect them to).

gaps can be extremely profitable if u get it right. i mean, volumes and liquidity, especially at open are outrageous...what's there stoppin' u from movin' 10s of thousands of shares? nuttin'. u gotta look into the future and see where the potential for growth in your tradin' really lays, innit.

 

[Raystonn]

If you combine the two mentioned strategies, you would be left with a strategy where you wait for the price to fill the gap and then enter a position looking for it to trade back toward the opening price. If both of the above-mentioned strategies are profitable, then this combination would be profitable as well. However, when back-tested, you will really see that neither of these is profitable in the long run. You always get hit with the big occasional loss, reverting you to the mean.

-Raystonn

 

[Trvlwanderer]

It's still about stacking the odds in your favor.

If a stock closes the gap 80% of the time, that is positive. If the gap fill places you at a 3/1 reward to risk, that is positive (bail out if you called it wrong with minimal loss).

If pre-market stats determine an above 60% chance of confirmation, that is positive.

How about the rate of fill? If the gapper meets the above, what do the stats show for time duration of fill?

I've been successful with gaps, but you have to stack the deck and deal with the losses. Although those losses should be low in regards to your risk/reward approach. My $.02

 

[IronFist]

Quote from Raystonn:

Higher volume means a larger chance of a reversal, and thus a gap closure. It signifies greater resistance to a continuation of the gap's trend.

-Raystonn

So I had it backward.

 

[IronFist]

So do people trading the gap use a stock screening program to search for stocks that gapped up or down each morning?

 

[Trvlwanderer]

Iron....yes. See previous posts or search stockfetcher.