Trading Gaps: most important factors to consider

R

rmyers11

I have just started trading gaps (mostly down) and am currently using these criteria to pick my stocks. Now I weigh these factors pretty evenly. What would be the order of importance for you for these factors? Are there any I should add?

-High volume
-High relative volume
-Low float
-Low intraday range (ATR)
Thanks
 
I'd advise that none of those matter.

There are basically 3 types of gaps for traders... 1, maybe 2 variations on each.

1. Gap-n-go

2. "Gap and Crap" (reverse)

3. "Gap Fill and Resume"... price reverses like "gap and crap", but once the gap is filled reverses again for perhaps sustained move in the direction of the initial gap.

As to which it is.... gotta guess. Should have in mind which one you think it is* or might be so that if it looks like not working out that way, you can limit losses.

*Example.... say market has traded off to be a bit oversold and before the market opens the Fed announces surprise rate cut. That should produce an upside gap... "gap-n-go" would be most likely then.
 
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Scataphagos said:
I'd advise that none of those matter.

There are basically 3 types of gaps for traders... 1, maybe 2 variations on each.

1. Gap-n-go

2. "Gap and Crap" (reverse)

3. "Gap Fill and Resume"... price reverses like "gap and crap", but once the gap is filled reverses again for perhaps sustained move in the direction of the initial gap.

As to which it is.... gotta guess. Should have in mind which one you think it is* or might be so that if it looks like not working out that way, you can limit losses.

*Example.... say market has traded off to be a bit oversold and before the market opens the Fed announces surprise rate cut. That should produce an upside gap... "gap-n-go" would be most likely then.
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well, WADR this is like saying you need to put 1 foot in front of the other to walk... seriously, 3 gap scenarios.

gaps used to be significant when 930am the specialists open the books... nowadays 24/6 trading plus strong correlation between the markets.

one thing is if you can gauge the market makers' on hand inventory (long or short) based on previous day's action, then the gap will provide some clue.... in most case they just want a better price to get back to flat.
 
Scataphagos said:
I'd advise that none of those matter.

There are basically 3 types of gaps for traders... 1, maybe 2 variations on each.

1. Gap-n-go

2. "Gap and Crap" (reverse)

3. "Gap Fill and Resume"... price reverses like "gap and crap", but once the gap is filled reverses again for perhaps sustained move in the direction of the initial gap.

As to which it is.... gotta guess. Should have in mind which one you think it is* or might be so that if it looks like not working out that way, you can limit losses.

*Example.... say market has traded off to be a bit oversold and before the market opens the Fed announces surprise rate cut. That should produce an upside gap... "gap-n-go" would be most likely then.
More...

I realize there are three kinds of gaps, but what metrics do you use to narrow down the ones that you choose? There are like 100 gap downs every day, there has to be a way to filter out which one to choose
 
Are you following Tradenet? They like to short large gaps. I would think spreads, uptick rule, and hard-to-borrow would be your first concerns. The rest doesn't matter, imo, because the way the stock trades on news is not the same as it trades historically.
 
Gaps backtest amazingly well but they are hard to trade outside of major indexes. Even if you screen premarket for bid/ask being way above or below the previous day close and you enter a moo order there may not be a gap or you may enter the wrong direction (eg bid ask is above previous close but first trade is actually below). The next problem is you can’t easily get size on with moo orders either - on average I got filled on less than 400 shares per symbol. 400 shares on a 30 cent gap on a liquid stock like bac is not worth the effort imo.
 
gaps is another example of people looking for the free lunch that doesn't exist... you think with millions of computers out there back testing everything, you are gonna find some kind of inefficiency that the other computers have not found... on a simple thing like a gap.

again - trading is about unfolding stories... not about finding something thats just 'sitting there' for you to pick it up.
 
dozu888 said:
you think with millions of computers out there back testing everything, you are gonna find some kind of inefficiency that the other computers have not found... on a simple thing like a gap.
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I don't think it's a fair comparison. Computers are great at finding repeating patterns. Humans are great being able to see a difference in what seems to be the same pattern. Both can have an edge and neither may have an edge.
 
qlai said:
I don't think it's a fair comparison. Computers are great at finding repeating patterns. Humans are great being able to see a difference in what seems to be the same pattern. Both can have an edge and neither may have an edge.
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Heard of machine learning :)

Of course eventually machines will do better even in unfolding stories. But that’s a time frame that has not been invaded yet. And longer time frames provide less data for the machines to learn.
 
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