Trading The Opening Gap

Tall Mike said:
So if anything, try and build a strategy around gap continuation?
More...
I think of a gap up as the bull flag that it resembles, and sometimes I play it that way if I see a classic consolidation in the works. It seems to work at least as well, if not better, than expecting a gapped stock to go back and "fill the gap" with price action. Also depends a lot on the trend before end of day. And VOLUME. If 200 shares trade in 5 minutes or if 2500 shares trade in 5 minutes makes a difference.

I don't play a gapper until I have seen 3 or 4 5-minute candles after the opening bell. Premarket trading can be totally divorced from open market trading. Also the spread. A big spread to me is a stay away signal and after the bell that 60 cent spreader might be down to 1c or 2c.
 
In trading gaps for 20 years, I've found the best gap continuations are ones with very small gaps of less than 10% of the stock/etf price. So a $20 stock that gaps no higher than to $22, for example. Best gaps are < $1 just above pd high.
 
Tall Mike said:
Does anybody here use gap openings in their trading?
More...

Yes.

Tall Mike said:
Do any more experienced traders have any advice on this?

Thank you in advance!
More...

Know when to pay attention to them and know when not to. Not all gaps are equal either.

I'd recommend getting some data in Excel or similar and find the results for yourself.

Note: We just filled today's gap on ES, but took a huge detour first.
 
Laissez Faire said:
Yes.



Know when to pay attention to them and know when not to. Not all gaps are equal either.

I'd recommend getting some data in Excel or similar and find the results for yourself.

Note: We just filled today's gap on ES, but took a huge detour first.
More...
Do you just trade the ES?

Can you give me some examples of criteria that I might consider when backtesting gaps in excel? Would they be fundamental factors?
 
Tall Mike said:
Do you just trade the ES?

Can you give me some examples of criteria that I might consider when backtesting gaps in excel? Would they be fundamental factors?
More...

Yes.

I'd prefer not to, but maybe you could find a way to classify gaps based on their strength and 'where' the day opens? If you spend a few weeks thinking on it I'm sure you'll discover something.

Some quick numbers.

If we look at all + gaps without any further filtering, 49,2 % close fully.

If we're less strict and accept within 2 points as a fill, we get 57,7 % of + gaps closing.

To the downside, the number is 52,4 % for a full close. Reflecting the bullish nature of the markets.

From these numbers alone it's clear that merely fading a gap is a stupid idea.

You could just simplify all this and merely pay attention to the prior Close. If we're moving towards it, generally, it's a good target. But if we're moving away from it - well... :)

SunTrader said:
Actually not when measuring from yesterday's 415pm ET close of 3050.50, today's RTH high (so far) is 3048.75
More...

I know some use the 16:15 close, but regular trading hours for US Equities are 09:30-16:00. So I've always used that one.
 
Laissez Faire said:
...
I know some use the 16:15 close, but regular trading hours for US Equities are 09:30-16:00. So I've always used that one.
More...
IMO other way around some (you are the first I heard of) use 4pm

If ES is what is traded, ES is what is looked at.
 
Laissez Faire said:
ES trades 24/7 if you want to use that line of reasoning.

Plenty of ES traders who don't care about gaps at all.
More...
Ok so I should have said:

If ES is what is traded for open gaps, then a ES RTH 930am-415pm ET chart is what is looked at.

Better?

Don't take my word for it. Google. You might find one or two who don't use 415pm ET close - out of 1000's of hits. I like to be contrarian but not when it doesn't make sense to be.
 
You must log in or register to reply here.
Back
Top