Gaps Inside the Prior 4 Days
4 CommentsThis morning's gap generated a discretionary "go with" signal from Otis, my gap trading system. Meaning, my research showed that not only should one not attempt to fade the gap, but historical probabilities favored trading in the direction of the gap. I waited until after the open to enter and nabbed 5 pts to the south side. Unfortunately, Otis did not tell me that the ES would sell off almost 100 pts. Wow.
This morning I also shared the following interesting research nugget with members at www.MasterTheGap.com: fading gaps that open between the low and high of EACH of the past 4 days' trading range has been problematic historically (past 10 years).
Specifically, fading all gaps that opened inside the highs and lows of each of the prior 4 days, targeting gap fill, and using a reasonable stop (25% of the 5 day ATR), shows a 50% win rate and a negative profit factor. Here's the Tradestation strategy summary:
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Reader Comments (4)
Gagguy,
This posting is a little confusing to me. Don't most gaps open between the high and the low of the prior 4 day range?
btw - nice site. I look forward to reading it regularly.
Thanks for the question. This was not as clearly worded as it should have been. It should have been stated as:
"fading gaps that open between the low and high of EACH of the past 4 days has been problematic historically"
Hope this makes more sense.
-GG
Hi Scott,
It doesn't seem we've been hearing much from Otis regarding "Go With" trades recently, I was wondering if there was any specific reason or just not a lot of "Go With"'s.
Thanks, Frank
Yep, been very few of those this past year. The most common setup I have for "go withs" is after several down days - and there have been few sell-offs like this over the past year. It's also a difficult trade for me due to the size of stop required (beyond the gap fill area) and thus I haven't spent of alot of time working on this setup. Thanks for the note Frank.