Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

MarketExceptions

Trading the Opening Gaps

Did you find this poll useful?  

12 members have voted

  1. 1. Did you find this poll useful?

    • Absolutely
      5
    • yes
      1
    • Somewhat
      1
    • Not at all
      5


Recommended Posts

I have been trading the opening gaps for quite a while. My opening gap trades are based on some research I do trying to understand the behavior of gaps in various market conditions.

It has been profitable for me and some of the other people I helped.

In this thread I will share my information with you. I will also suggest the days and the conditions that I think are profitable to trade the gap.

But first lets start with basics:

Frequently the market opens in the morning at a different price than the price it closed at, the day before. This is called an opening gap. If the market opens higher, it is called an up gap and if it opens lower, it is called a down gap. Statistics shows there is a tendency that the price moves towards the close of yesterday. Many times the price reaches the close of yesterday, in which case we say the gap was filled. In fact, about 70% of all gaps get filled the same day. This should not be a surprise because the close of yesterday is the most important price we have. It is a price that buyers and sellers finally agreed on after a whole day of fighting with each others. This is a price that makes the most psychological impact on traders minds.

Experienced traders usually pick a narrow area of market to become master at. This area of opening gap can be the that small area of the market you may want to consider to be your area. There are many advantages in trading the opening gap. The one advantage is that most of the time your trade is done by 11:00 AM, many times much earlier, and you can have the rest of the day for yourself.

Generally speaking, there is a tendency that market closes the gap at some point. This is called fading a gap. However, this general tendency is not strong enough to justify the risk and reward for any size gap at any day under any market conditions or recent market patterns.

Successful gap traders pick certain gaps under certain conditions that gives them the edge. Just like any other strategy, you want to pick the cream of the crop to trade.

I have studied the opening gaps for quite a while. Using my background in probability and statistics, I have worked on many aspects of opening gaps, starting with the most common aspect that is fading a gap.

Share this post


Link to post
Share on other sites

10-19-10 ES Gap Fill - The ES did not fill the overnight half gap today. It came close, but did not fill. There is a gap, however, that the ES did fill. And that is the half gap from midnight on. I use two different Half Gaps". One is the traditional half gap from yesterdays close to today's open. The other one is from today's price at midnight to today's open. They are often two different price levels, and tell a story. Today's gap was from 1181.25 down to 1167.25. So there was an unusually big drop overnight. To big a gap, I guess, to fill the overnight half gap. But again, the midnight to open half gap filled. And it filled by 10:15

Share this post


Link to post
Share on other sites
why midnight? what is so important about that particular time.... most traders are sleeping.

 

Isn't that the whole point of gaps? Gaps occur when markets are 'sleeping'.

 

I presume as he speaks of 'half gaps' he is dividing the gap by time (hence midnight).

 

Incidentally markets really are 24 hours now maybe most US traders are sleeping though I know a few who get up for the EU open. :) That is one of the issues facing gap traders. I wonder if you have looked at other instruments TW? I am thinking ones that still trade in sessions and that are reasonably un correlated with instruments that trade 24 hours.

Share this post


Link to post
Share on other sites

If you take the price at midnight, then the price at 9:30, add them together and divide by 2, that is half the distance between the two price levels. I can only guess at why the half gap based on midnight and 9:30 sometimes works. Traders probably have had time between the close of yesterday, and midnight to think about what is probable and what their strategy is going to be. Maybe there is new information. In any case, the sentiment of investors can change from yesterday at the close to very early morning. And that sentiment, speculation, hedging, whatever their strategy is, is reflected in the price action.

Share this post


Link to post
Share on other sites
If you take the price at midnight, then the price at 9:30, add them together and divide by 2, that is half the distance between the two price levels. I can only guess at why the half gap based on midnight and 9:30 sometimes works. Traders probably have had time between the close of yesterday, and midnight to think about what is probable and what their strategy is going to be. Maybe there is new information. In any case, the sentiment of investors can change from yesterday at the close to very early morning. And that sentiment, speculation, hedging, whatever their strategy is, is reflected in the price action.

 

you said the keyword...

if you find 2 numbers,

anywhere,

any numbers,

then divide them by whatever number (it doesn't have to be 2),

you will find them sometimes works.

Share this post


Link to post
Share on other sites
you said the keyword...

if you find 2 numbers,

anywhere,

any numbers,

then divide them by whatever number (it doesn't have to be 2),

you will find them sometimes works.

 

I don't know what percentage of the time it works. I don't have extensive data with statistically proven numbers within a certain deviation error as backup proof. Do I need that before I make a post? I'm new here, so I just want to make sure. My apologizes to everyone in the group if I have provided misleading and useless information that does more harm than good.

It's really cool what you did with the big red letters. Can you teach me how to do that? Maybe I can figure it out on my own.

Share this post


Link to post
Share on other sites
I tried sending Tams an email, but Tams doesn't accept personal messages, so I'll post this here. The two numbers that I use are not just any two numbers. They are specific numbers under specific conditions. Tams post seems to insinuate that I just picked two numbers at random and divided them by some other random number. What is your point Tams? I don't know of anything in trading, where something is true all the time. So, I did not quantify exactly what I meant by "sometimes", and Tams did not quantify or provide anything to refute the half gap strategy. At the very least, Tams has twisted my words. If it was unintentional, then it shows a lack of paying attention to detail, and making a comment before you know what you are talking about. Hopefully that was the case.

 

if you think I insinuate something, you are full of self-serving imaginations.

if you are upset because of it, that's your own fricken problem.

no skin off my back.

 

Hey, you are twisting my words.

Why don't you pay attention to what I highlighted?

 

this is an anonymous open discussion board,

people talked about all kinds of things... including those that are none of your business.

 

I turned off the email to prevent idios like you sending me stupid self-righteous messages.

(if I could block that crybaby mods, I would too)

Edited by Tams

Share this post


Link to post
Share on other sites

In my experience, ES tends to reverse on the first major s/r level that it hit's in the morning, weather this be closing a Gap or a level as simple as the globex high or low. If you look at a 30min chart for this week, you'll see what I mean.

 

A market where trading the gap is very clear and highly effective is the bund. If gaps are something that you like trading, you might want to have a look at it as well as the markets you currently trade.

Share this post


Link to post
Share on other sites

You did an excellent job building a foundation for what the opening gap is. I was hoping you might actually share some of the rules you've developed over the years. I've attended several Master the Gap webinars on the topic. They've always been very informative. The main rule I took aware from their presentation is that the best gap plays are ones that fit in between the previous day's close and the previous day high or low depending on the close.

 

Gap Up: In between Close and Previous Day's High

Gap Down: In between the Close and the Previous Day's Low

 

Does anybody else have any other rules they would like to share regarding the Opening Gap?

Share this post


Link to post
Share on other sites
The main rule . . . is that the best gap plays are ones that fit in between the previous day's close and the previous day high or low depending on the close.

 

Gap Up: In between Close and Previous Day's High

Gap Down: In between the Close and the Previous Day's Low

 

 

Interesting, I hadn't heard of that before. I've heard people say that they don't try to fade the gap if, for example, the ES has gapped more than 10 points. There are days when the gap doesn't fill. My opinion is, that you can make a judgment about that according to how unexpected the news was. If there was an extremely positive news surprise for example, and UVOL is just screaming up, then I wouldn't try to fad the gap up.

Share this post


Link to post
Share on other sites

It's very easy to do statistical analysis on gaps. Either use your favourite charting package or if it's scripting language is beyond you, use excel. Rather than rely on some 5th hand rules based on some nebulous 'research' done when the pit session was the only game in town, see for yourself what is 'best', that is my number one rule :)

 

Opening gaps, opening range break outs, globex highs lows....even 'floor' pivots are all simple to test and can form the basis of a robust strategy. There really is no excuse for not doing the work yourself or if you really do want to rely on someone else (why?), pick someone that at least appears to have done it (or verified it) themselves. Someone that present rigorous test results with a robust (and obviously well documented) test procedure.

Share this post


Link to post
Share on other sites

Agree the bund is very good at filling its gaps, generally within 2 hours. But looks like the bobl is even better. Have you traded it ?

 

 

 

In my experience, ES tends to reverse on the first major s/r level that it hit's in the morning, weather this be closing a Gap or a level as simple as the globex high or low. If you look at a 30min chart for this week, you'll see what I mean.

 

A market where trading the gap is very clear and highly effective is the bund. If gaps are something that you like trading, you might want to have a look at it as well as the markets you currently trade.

Share this post


Link to post
Share on other sites
You hate them? Well,we've all got our pet hates on here haven't we?

 

You dug this old thread out just to tell us this.Still,lets run with it.So tell us how you arrived at this controversial and thought provoking announcement wiz.

How extensive and thorough was the research?.... i'm taking a wild guess partly based on your choice of words..such as "seems",but I could be very wrong.Btw,your post count is coming along nicely.When are planning to start marketing?

 

As you have an opinion on just about anything- I got a neighbour (farmer) who's doing a bit of a diy fix on one of his tractors which is running lean..He thinks it may be the velociraptor valve playing up,whereas I think it's the multi pin on the stegosaurus tail injector....any suggestions?

 

first of all, I didn't dig the thread, and even if I did, I don't see what the problem is...

second, I find your tone being unpolite, not to say more

and third, it s probable the velociraptor valve

Share this post


Link to post
Share on other sites

Totally agree with you that, as a Master, Mits could have been a bit more welcoming to you but who knows, everybody have their ways of saying welcome :).

Nonetheless I agree with him: which argument are you bringing to the discussion at hand? Any trading strategy you think of can be deemed worthless by anybody who doesn't master it. Mr Google can testify that there are lots of successful gap traders and teachers.

Attached is a chart of the Bund with 8 recent gaps. They didn't all fill, but that should be okay for the probability player, as the overwhelming majority (5/8) got filled with awesome profits. And there are some lessons to be learned from those not filled as well, if you scrutinize them closely.

 

first of all, I didn't dig the thread, and even if I did, I don't see what the problem is...

second, I find your tone being unpolite, not to say more

and third, it s probable the velociraptor valve

5aa711f46ad07_Bundgaps(SEP-13).png.b1f1f7336b18e9ed20f40c6c2c2abc44.png

Share this post


Link to post
Share on other sites
Totally agree with you that, as a Master, Mits could have been a bit more welcoming to you but who knows, everybody have their ways of saying welcome :).

Nonetheless I agree with him: which argument are you bringing to the discussion at hand? Any trading strategy you think of can be deemed worthless by anybody who doesn't master it. Mr Google can testify that there are lots of successful gap traders and teachers.

Attached is a chart of the Bund with 8 recent gaps. They didn't all fill, but that should be okay for the probability player, as the overwhelming majority (5/8) got filled with awesome profits. And there are some lessons to be learned from those not filled as well, if you scrutinize them closely.

 

well, the reason I said what I said it's about the simple fact that gaps are a controversy for the whole trading world as a matter of fact

 

western world consider them mandatory to close, while Japanese consider them continuation patterns (rising and falling windows).....so where's the catch? where's the trick?....oh wait.......the ones that do not close under the Western world approach, should be considered continuation patterns.....and the ones that do close should be considered regular gaps...like in London's subway.."mind the gap"....so in the end, it's about how you perceive them and how are you trading them.....same examples of successful traders looking for gaps to be closed exists of traders treating them as continuation patterns

 

I trade mainly currencies...this being a fact, I find sometimes that regardless of what stock are you in, because of fundamentals (daily ones), the indices are going down and your stock as well, so gaps are mostly common on equities...that's why, not relevant.....in conclusion, if you want to trade/study/interpret gaps, look at currency markets.......

 

hey, Mits, is this answer good enough for you? even if not, as Bobcollet puts it, you are 10 times better at Gann's approach...so no hard feelings taking, I would really appreciate your point of view on the Knowledge is of more value as gold thread......or email me if you don't want to post there, whatever....thanks and excuse my French....:)

Share this post


Link to post
Share on other sites

Trading gaps is about understanding what the gap signifies.....if the gap is an expression of momentum....the real question is....."is there enough interest and latent momentum in the market to sustain continuation of that move.....or is that interest and momentum exhausted (as is often the case) on the next open (whether it be the next open of a bar or candle, or the next open of a market session)

 

As with most things in financial markets, the "tell" is volume and the acceleration of either buying or selling volume on the next "open" after the gap....

 

For those who have a way to read volume, you simply watch which way it goes and compare to the movement of price in that same time frame.....IF volume is ramping up AND price is accelerating toward the gap fill, chances are quite good that the gap will fill...if (as is mostly the case) that momentum is exhausted on the open, you will may see one of two scenarios

 

Scenario 1....volume ramps directionally but price does not respond....this indicates that the other side has more horsepower and the move is likely to fail..

 

Scenario 2....volume and price create a reversal pattern and after a short hesitation, volume ramps up and then price follows in the opposite direction creating a reversal...

 

The bottom line is this....for those who don't or can't read volume, look for the acceleration of price either toward the gap fill or away....typically price will hesitate, creating a sideways move, and at that point you usually have an opportunity to enter...

 

Good luck

Share this post


Link to post
Share on other sites

The longer the time, the riskier the outcome imho. Not sure the extra risk is worth the while. I always consider gaps as intraday plays.

 

 

One of those unclosed gaps does close later but not on same day.So maybe higher odds for longer term trades v day trades?
Edited by kuokam

Share this post


Link to post
Share on other sites

Absolutely, MMs.

We are having the hottest days of 2013 right now in Europe. If that is the case in the Usa as well, can that be the reason ?

 

 

Easy guys ... let's all try to have constructive discussions without the negativity and name-calling

 

thx

MMS

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Topics

  • Posts

    • its a slow start for 2021, but BTC is having a blast, hitting the 40k mark, will it continue, though its back at 32k++right now
    • a fun perspective on MSM’s role in recent events https://www.hangthecensors.com/490535.html     plus more inauguration day / welcome to north venuazala tidbits ...  2,000 attendees at inauguration — and 25,000 military — just like ‘regimes’ in banana republics ... just sayin'  
    • This is precisely the way MSM would describe it... :snarc: https://internationalman.com/articles/the-coming-new-order/ https://mises.org/wire/what-bidenharris-will-do
    • Date : 23rd January 2021. FX Update – January 22 – USD Holds gains & PMI’s. GBPUSD, H1 The Dollar has firmed up on a safe haven bid with the reflation trade having come to a firm stop. The USDIndex lifted moderately to a 90.25 high after basing out at a nine-day low at 90.05. The US currency gained only marginally against the Euro and Yen, but racked up gains of around 0.4% to 0.5% against the Pound and dollar bloc currencies. EURUSD ebbed back from an eight-day high at 1.2178, before recovering to 1.2188 following Eurozone PMI data, while USDJPY lifted to a two-day high at 103.70. Global equity indices corrected from record highs in the cases of the main US indices and the MSCI Asia-Pacific Index. Base metals are also markedly lower. Lofty valuations and an increasing level of concern about the Covid situation have warranted increasing investor caution. Covid restrictions have been implemented across northern China, and the new highly transmittable variant of the SARS-Cov2 coronavirus — aka the British variant, where it was first detected — has shown up as far afield as Beijing and Australia. The EU looks set ban travel to the UK, while the UK has already imposed much tougher international travel restrictions. The rollout of the Covid vaccinations globally has also been proving to be bumpy. Elsewhere, cryptocurrencies dropped sharply again, which will only add to their reputation for being too volatile for serious institutional investors to touch. Reports that the Biden administration has tighter regulations for cryptocurrencies on its ‘to do’ list have been driving cryptos lower. Bitcoin was showing an 11% loss on the day, as of the early London morning, at $30,860 — which is nearly 26% below the record high seen earlier in the month. The virtual coin earlier traded below $29,000 for the first time since January 1. Eurozone Flash PMI readings declined as lockdowns were strengthened and/or extended. The last minute Brexit deal may have helped to prevent a worse number for the manufacturing sector at least, and the decline in the Eurozone manufacturing reading to 54.7 from 55.2 was actually less pronounced than feared with the number still pointing to a solid pace of expansion. Services meanwhile are clearly suffering. The Eurozone services PMI dropped back to 45.0 from 46.4, driven largely by a sharp deterioration in the French reading, which fell to 46.5 from 49.1. The German index held up better than feared and dipped only slightly – to 46.8 from 47.0. The overall composite for the Eurozone came in at 47.5, down from 49.1 at the end of last year and supporting expectations for a technical recession over the Q4 and Q1 period. Across the Channel UK PMI data showed a woeful record for Services and came in much weaker than expected. The headline composite PMI plunged to 40.6 from 50.4 in December. The median forecast had been for a 45.5 reading. Pronounced weakness in the service sector drove the composite lower, with services bearing the brunt of the lockdown across the UK nations, which has been the most severe since last year’s ‘mother’ lockdown. The prelim services PMI headline dove to 38.8 from 49.4. The prelim manufacturing PMI fell to a headline reading of 52.9 from 57.5, which was near the median forecast for 53.0. Much of the manufacturing sector remains open, despite the lockdown. The drop in the composite reading, while sharp, is still less much less severe than was seen during early spring last year. There are hopes that the UK’s world-leading vaccination programme will start to see restrictions lifted from as early as mid February, by which time all the most vulnerable groups should have been vaccinated. Cable trades down to test 1.3650, down from yesterday’s high at 1.3745 and today’s open at 1.3729. Always trade with strict risk management. Your capital is the single most important aspect of your trading business. Please note that times displayed based on local time zone and are from time of writing this report. Click HERE to access the full HotForex Economic calendar. Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE! Click HERE to READ more Market news. Stuart Cowell Head Market Analyst HotForex Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
    • Yes, its important to select a forex broker, start by looking for brokers that are regulated in your country. Next, read full length forex reviews to assess the trading costs, tools, research capabilities, customer service, and other features of each forex broker. Finally, compare your top two choices side-by-side to decide on a winner.
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.