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Gaps Following Trending Days To The Upside

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Wednesday, April 22, 2009 at 3:58PM

Gap Guy tagged

S&P 500 in

Patterns

This morning, the MTG Probability Guides showed solid historical probabilities for fading today's large down gaps in each of the indices. But there were some pattern risks and I was curious about yesterday's somewhat unusual trend day (i.e. the indices opened very near their lows and closed very near their highs). In fact, the S&P 500 e-mini's open and closing prices (regular pit session hours) were within 5% of day's trading range from the low and high respectively - meeting my simple definition of a "trend day" to the upside.

I decided to back-test gaps that follow simple trend days up. Based upon the results (shown below), I decided to fade the opening gap and captured a very nice 8.5 point winner (+$425 per contract).

Note: results shown are based upon fading 10 contracts, at the open, using a stop equal to 30% of the 5 day ATR and targeting gap fill, 1999 - 2009 (excludes today's winner).

For a more a detailed overview of this nicely profitable trade, check out my daily gap wrap video at www.masterthegap.com.

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Important Disclaimer: The analysis and information on this site is provided for informational purposes only. Nothing contained herein should be interpreted as personalized investment advice. Under no circumstances does this information represent a recommendation to buy, sell or hold any security. None of the information on this site is guaranteed to be correct, and anything written here should be subject to independent verification. You, and you alone, are solely responsible for any investment decisions you make! Futures, options, and spot currency trading have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.