But trading with discipline is easier said than done.  As a military pilot I routinely experienced the value of following a plan and sticking to it at all costs.  However, as a trader I have realized that there are unique elements that can seduce even the most rigid and structured personalities from doing the right thing, at the right time. 

A trading plan is only realistic IMHO if it is based upon an expectation that is grounded in history - what has happened in similar situations historically.  However, even with robust, mathematical odds for each day's opening gap with specific targets and stops (like we have at www.masterthegap.com), some folks still struggle with following their plan.  Hence, it is why we asked Tim Mock to be our trading "Coach". 

Here's Coach Mock's excellent 4 minute video on trading with discipline:

But why?  How could this possible?

The answer: unrealistic expectations. I speak from experience. After spending about $20,000 and 15 months of enormous effort to learn everything there was to know about a proven, conservative option trading strategy from a highly acclaimed trading mentor, I called it quits. And this was after I made a substantial profit in my first year of live trading. Unfortunately, I gave back almost all of these profits in about 3 months of my second year and worse, I did not know how to avoid this happening again.

The reason: I did not know the probability of success on a given trade or how many consecutive losses to expect while trading this strategy. Therefore, I did not know how much of my account to risk per trade in order to achieve my goals and avoid exceeding my maximum drawdown.  Without this information, I was doomed and I knew it.  I would never be successful without having historical probabilities to guide my expectations, trade execution and trading plan.  A few months later, my gap trading career was born and a few years later, MasterTheGap.com. 

Since we started providing daily gap trade probabilities about a year ago, hundreds of traders from all over the world have thanked us.  Many are achieving new milestones and financial goals that they thought were unattainable. While having daily probabilities is a tremendous advantage, it is not enough. Folks ask me time and time again, “how much capital do I need?”  “How much should I risk per trade?”  “How much could I make?” And each time, I can only answer, “it depends.” It depends on a number of highly inter-related variables that are very personal and unique to each individual and his/her financial goals. 

Previously, the only way to test and balance the impact of personal elements such as account size, profit goals, drawdown tolerance, consecutive loss tolerance, etc. was to create your own complete trading system – a project too intense, time-consuming, and expensive for most traders and active investors.

Today there is another option. I am thrilled to announce the launch of “The MTG Wizard” – a straight-forward, robust, cost-effective modeling and planning tool that helps traders and investors create realistic trading plans based upon account size, goals, trading strategy, and risk-tolerance. Whether you are MTG member, gap trader, or neither, this tool can help you. 

As Fred from California, a long time member and trader for 20+ years told us, “it’s totally the coolest thing I've seen in the trading world since TradeStation came out in the 80's.”  His words, not mine, but it does capture the spirit of exactly how important I believe the MTG Wizard is, or at least should be, to most traders.

Next Wednesday, January 27^th we will be conducting a 2 hour training webinar, that will be recorded for those of you that can not attend. To learn more about The Wizard and this webinar and to see a sneak-peak 8 minute video, go to: www.masterthegap.com/thewizard

A few special notes:

• The Wizard can be used for any trading setup, not just gaps. It also works for futures, ETFs, or stocks.
• Purchase entitles you to all future upgrades and enhancements at no additional charge.
• Purchase by Tuesday, January 26^th and you will receive a special introductory $50 discount. It will not be offered again, so don’t ask.

Thank you for your interest.  If you have any specific questions about the MTG Wizard, feel free to post a question here or email Coach Mock at tim @ masterthegap dot com

Carpe Diem!

I too had an excellent and quite profitable 2009. I also had a very good 2008 and 2007 as the image below demonstrates thanks to my market-neutral strategy.  Here's the equity curve for one of my gap-only trading accounts, trading the e-mini futures (primarily S&P 500), since the markets peaked in October of 2007 through present, January 15, 2010:

Note:  The above is a TradeStation generated equity curve for a small, dedicated account (~ $50,000 starting) that was traded more aggressively than my other accounts.  The number of trades is greatly skewed because it counts every partial position scale out as an individual trade. In reality, the above represents about 200 trades over the 30 month period.

Disclaimer:  While my daily trading plan for every one of these gap trades was posted (along with their supporting historical probabilities) for MasterTheGap.com members in advance of the opening bell and prior to my entering the trade, the above is shared explicitly for your education only and to represent what is possible while gap trading.  Individual results vary dramatically based upon experience, discipline, leverage utilized and many other variables.

Here's a detailed breakdown of my 2009 trades:

• Win rate:  65% (48/74)
• Profitable months:  11
• Losing months: 1
• Profits per contract for year:  $2827 
• Profits per contract per trade:  $38.20 (note does not include commissions which average $3-5 per round-trip trade depending on the account and broker)
• # Short trades:  53 (72% of all trades)
• Short win rate:  64%
• Short % of total profits: 77%
• # Long trades:  21 (28% of all trades)
• Long win rate: 67%
• Long % of total profits: 23%
• Average win size: $202 / contract
• Average loss size: $264 / contract
• Win / loss ratio:  .77
• Extended target: 35 attempts, 24 hit / 11 missed (69% success)
• Time in market:  .7 %  (62 hours / 8760 hours for the year)
• Average trade length: 50 minutes
• Average winning trade length: 42 minutes
• Average losing trade length: 1 hr, 05 minutes
• Most consecutive wins: 8 (1 time), 7 (1 time),  5 (3 times)
• Most consecutive losses:  4 (1 time), 2 (3 times)

The following table shows the historical gap fade win rates by opening zone for the S&P 500, Dow 30, Nasdaq 100, and Russell 2000 markets. 

Note: the zones are based upon my standard nomenclature as defined on the Gap Zone Map at  http://www.masterthegap.com/public/106.cfm .

Key assumptions:

1.  Enter in the opposite direction of the opening gap (i.e. fade) at the open of the New York Stock Exchange (9:30:00 am EST)

2.  Target gap fill (prior day's closing price:  4:15 pm EST for the futures markets)

3.  Close the position at the end of the day (4:15 pm EST) if the gap has not filled.  This is not a recommended strategy - always use stops!

The above results are based upon all "tradable" gaps with the following minimum size: ES: 1 pt, YM: 10 pts, NQ: 2.5 pts, TF: .5 pts, going back at least 7 years until 2002.

Been way too long since I last posted here on this site. Our member site has grown quite a bit and has kept me quite busy.

Per a Master The Gap member request, here's a video showing the historical gap fill results for fading opening gaps in the ES (E-mini S&P 500 futures) from 1/1/98 - 9/28/09.

The following video analysis assumes:
- all size gaps were faded (i.e. traded in the opposite direction of the gap e.g. down gaps were bought and up gaps were sold)
- at the opening price
- targeting gap fill (prior day close)
- using an end of day stop
- $5 commission per round trip trade

http://www.masterthegap.com/public/292.cfm

Note: this is not a recommended strategy of course, but interesting and hopefully helpful nonetheless.

Other patterns that fired today include opening below the 600 MA on a 5 min chart (see prior research in this blog on that topic), and opening down after a shooting star candle pattern as discussed in this previous video at www.masterthegap.com.

Note: The results below assume that you faded the opening gap and closed it out at gap fill (prior day close) or exited at end of the day.

So the next time your favorite stock or index opens below S-1, you might want to watch out below.

Note: three "higher highs" give comparable results, but the three "higher lows" is a slightly better indicator in my opinion.

I think the slide says it all - good gapping!

It is a thought provoking idea that has some merit if applied to the right market. I decided to test the concept and some of the assumptions on the E-mini S&P 500 futures.

Check out my video on this topic - which also shows the optimal time to consider using a time-stop if fading the E-mini S&P or a correlated index like the Dow or Nasdaq futures:

www.MasterTheGap.com/TraderVic

Good gapping!

You can view my daily "gap wrap" updates in the "Free Info & Updates" section of our home page at wwww.masterthegap.com.  

Alternatively, you can sign up for the free Daily Update emai, delivered nightly around 7-9 pm ET, via the drop down window on the home page.   Or, follow me at http://www.twitter.com/thegapguy . 

Scott