Building a GAP Trading Strategy

[Building a GAP Trading Strategy]

ZOSO,

 

I don't like at overnight sessions that often, could you post a screenshot of an overnight gap if possible? Also what is the frequency of these gaps?

 

Thanks!

 

The only gap fill strategy that has worked for me is to trade the ones that occur in the overnight session. Remember, the ES is a 24 hour market. It's not uncommon for gaps to occur between the close of the cash market to the next day's opening, but an examination of the overnight action may show no gap at all.

 

Overnight gaps may be few and far between, but the probability of filling is over 80%.

 

Also, there has to be some air between the gap and current price--I look for at least 5 points.

[S&P Intraday Range and VIX]

I had 2 thoughts or questions actually:

 

1) Has anyone looked at utilizing ATM IV for individual stocks to forecast range of individual equities?

 

2) And is there any studies on forecasting future range contraction/expansion? In particular perhaps combining IV (VIX) with Static Vol to determine if IV expanded range leads SV or vice versa?

 

My questions come from a new trading idea to utilize something like probability maps in Tradestation or perhaps a NN forecasted range to trade options and specifically flys. My thought is if one can predict consolidation (at the very least) then you should be able to design a nicely profitable system.....

[ADR Arb/Spread]

I happened to speak to a guy at a cocktail party who does this for a living. He was at Susquehanna for a long time in the derivatives group and left with a few others a few years ago to go their own --- they were using 75x leverage to do ADR arbitrage (currency hedging is a part of it).

 

I would think this is very difficult to pull off unless you are very experienced at this type of thing and/or have some type of technology advantage.

 

I agree, the general method is to high-frequency market-making approach using cheap commissions and multiple accounts but I can't imagine these traders even remotely close to that level of sophistication.

 

Perhaps its some spread between the ADR and the base index? I thought I read in a paper ADRs due follow the local index during the trading day and perhaps they revert to the base index. So US equities rising, ADR rising, DAX is flat, short ADR?? I am grasping at straws but as I find out more I'll post...

[ADR Arb/Spread]

A buddy of mine asked for some help investigating an ADR trading strategy based on results of another trader making good money. Knowing these traders I can't imagine a sophisticated quantitative arbitrage model or conversion process but more likely following serial correlation or some other such simple strategy. Just wanted to throw it out there to see if anyone has heard about this approach or had any ideas? Thanks!

[Steenbarger Indicators]

Has anyone been able to successfully recreate the indicators used on Brett Steenbarger's site? Indicators include NYSE cumulative TICKS, Money Flow, and other market internals. Here is an example of one I am currently working on:

 

http://traderfeed.blogspot.com/2009/02/stock-market-sentiment-look-at-muted.html

 

Despite using the logic written I was unable to recreate the indicator in the timeframe shown in the examples. Thanks for any assistance!

[Algorithmic Trading with MATLAB Webinar]

I'm a relatively new MatLab user but had a procedural question to more experienced users: How do you visually review trades in order to check that the coded strategy is in fact doing as you wanted? I have utilized the tutorial and plotted position on the time series but this is very unwieldy compared to something like TradeStation or other retail products where you can just scan the chart for proper buy/sell signals. Just looking for best practice. Thanks!