What would you like to know?

C

cashmoney69

In the coming months I plan to post a study on gaps after I collect atleast 100 charts. The study will be aimed at swing traders who hold for a week or more.

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What are some things that you'd like to know about, on how to play gaps that I could include in my study?
 
Compare entry following a gap to lesser price with entry following a gap to greater price.

Long positions only. Short positions only.

What exit rule are you choosing?
 
Quote from cashmoney69:



What are some things that you'd like to know about, on how to play gaps that I could include in my study?
More...

Rather silly question. There is only 1 question regarding gaps:

How can you tell if the gap is going to close or not???
 
Quote from Pekelo:

Rather silly question. There is only 1 question regarding gaps:

How can you tell if the gap is going to close or not???
More...

Why would you discourage someone going to the trouble to do a study that could help you answer that exact question? Negative posters feel free to NOT POST.
 
Are gaps arbitrary? For example daily charts might show lots of gaps, especially opening gaps. Monthly charts might not show the gaps that are seen on a daily chart.

I expect to observe more gaps if trading is not continuous. For example in the stock market I might see a gap between the closing price of one session and the opening price of the next session. Currencies that trade 24 hours a day might show gaps of a different kind - a gap between the high price of one interval and the low price of the next interval.
 
Cash, you might be on to something.

I put together some code for a trading system based on gap entry. Here are the rules:

1) Buy when opening price shows X % increase from the preceding session closing price AND price is greater than the value of the Y time constant exponential moving average.

2) Sell when the low price of a session is less than the value of the Y time constant exponential moving average.

3) Position size = ( heat * equity / 100 ) / (10 x average true range)

Testing the system with 22 years of stock price data for Ford Motor Company shows these results:

EMA Time Constant 300 300 300 300 300 300
% width of gap 0.5 1 2 3 4 5
Number trades 29 23 19 12 10 9
Profit after commission, slippage 253975 267255 265079 241892 228877 84007
Per cent annual growth rate 11.54 12.15 12.05 11.00 5.41 3.82
Per cent greatest drawdown 11.46 10.39 14.00 12.03 14.01 16.76

Attached is the output of one of the trading simulations.
 

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