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Emini gap fill strategy data, books?


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Emini gap fill strategy data, books?

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  #1 (permalink)
Escondido CA USA
 
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I have been trading 6 months now, primarily using the VWAP. I am not profitable. It feels like a lack of high probability setups is hurting me. I must be doing a lot of guessing.

I'm considering trying to employ a simple, disciplined gap fill strategy that takes advantage of the opening price vs previous closing price.

Does anyone have any experience with this strategy? What would be the best way to gather the data and are there any books that are recommended.

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  #2 (permalink)
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Not sure if we are talking about the same thing but John F Carter had a gap strategy like ths.

For example,

ES gap from close to open RTH is less then 15 points want for gap to fill.

ES gap over 15 points strong move.

Not sure if those are the exact numbers, he has a few books out now I read the second edition and saw it thre

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  #3 (permalink)
Warsaw, Poland
 
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FT71 is a fan of statistical approach. He done stats and trading for a gap fill is a low probability game.

Regarding gap there is only one statistically important level: half gap between current session open and previois day HOD/LOD with over 75% probability of being tested

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  #4 (permalink)
Bucharest
 
 
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I don't think you really need any books, you already know what strategy you are interested in, these days everything is available online for free.
What you need to do is run comprehensive backtests with different market conditions.

A couple of weeks ago I had a discussion with someone that trades gaps in the opposite direction, looking for the gap to fill, claiming he was profitable.
It didn't take me very long to dismiss this strategy after my backtests clearly showed that strategy has no real edge.

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  #5 (permalink)
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Hi Tuglife,

Opening gaps in the Emini S&P are pretty much all that I've traded since 2005. In 2008, I wrote a short book/primer called Understanding Gaps and updated it in 2015.

It and the statistics within it are a bit dated, so am happy to share it here it for free. The concepts and lessons learned still apply.

Hope it is helpful.

Scott

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Register to download File Type: pdf Understanding Gaps - 2008 - v20516.pdf (1.02 MB, 65 views)
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  #6 (permalink)
Bucharest
 
 
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thegapguy View Post
Hi Tuglife,

Opening gaps in the Emini S&P are pretty much all that I've traded since 2005. In 2008, I wrote a short book/primer called Understanding Gaps and updated it in 2015.

It and the statistics within it are a bit dated, so am happy to share it here it for free. The concepts and lessons learned still apply.

Hope it is helpful.

Scott

Thanks Scott, I really liked the book, it takes a lot of work to come up with such a detailed system.
Quick question - today the /ES is about to open with a gap up, how would you trade it?
Do you only trade the /ES?

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  #7 (permalink)
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Thank you. The ES is my primary instrument for trading the opening gap though I also trade the YM and NQ and RTY on occasion for diversification purposes mainly.

I will either fade or follow the opening price action:
  • Fade = a mean reversion trade where I short "up" gaps or buy "down" gaps (i.e. trade against the overnight futures bias)
  • Follow = a momentum trade where I buy "up" gaps or sell "down" gaps (i.e. trade with the overnight bias)
Though futures trade nearly around the clock, I consider a gap in the context of the regular session / pit hours (i.e. the difference between the 930 am ET "open" price and the prior session 415 pm ET "close" price).

Regarding how I traded today's opening "up" gap: most of my data suggested a mixed/neutral setup and most of my gap strategies (I have about 15 main ones) PASSED on trading today. I had one that triggered long at the open (3283.0) and it will exit with a time stop near the end of the session or at my stop loss at 3268.0.

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  #8 (permalink)
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thegapguy View Post
Hi Tuglife,

Opening gaps in the Emini S&P are pretty much all that I've traded since 2005. In 2008, I wrote a short book/primer called Understanding Gaps and updated it in 2015.

It and the statistics within it are a bit dated, so am happy to share it here it for free. The concepts and lessons learned still apply.

Hope it is helpful.

Scott

Username checks out. Scott, thank you very much for sharing your hard work.

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  #9 (permalink)
Bucharest
 
 
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thegapguy View Post
Thank you. The ES is my primary instrument for trading the opening gap though I also trade the YM and NQ and RTY on occasion for diversification purposes mainly.

I will either fade or follow the opening price action:
  • Fade = a mean reversion trade where I short "up" gaps or buy "down" gaps (i.e. trade against the overnight futures bias)
  • Follow = a momentum trade where I buy "up" gaps or sell "down" gaps (i.e. trade with the overnight bias)
Though futures trade nearly around the clock, I consider a gap in the context of the regular session / pit hours (i.e. the difference between the 930 am ET "open" price and the prior session 415 pm ET "close" price).

Regarding how I traded today's opening "up" gap: most of my data suggested a mixed/neutral setup and most of my gap strategies (I have about 15 main ones) PASSED on trading today. I had one that triggered long at the open (3283.0) and it will exit with a time stop near the end of the session or at my stop loss at 3268.0.


Now that I read the book cover to cover, I realized that because of the Globex session almost every trading day opens with a gap.
When you say you have about 15 strategies, since you can only fade the gap or follow it how do these strategies differ? by the size of the stop loss and profit target only?
Would you rather trade a combination that has a win rate of 55% and a profit factor of 1.06 or a combination that has a win rate of 68% and a profit factor of 1?
Or in other words, what in the minimum win rate of your strategies?

Thanks!

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  #10 (permalink)
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Tuglife View Post
.... I must be doing a lot of guessing.


My opinion here from experience, not from backtesting, take it with a grain of salt: trading involves a lot of guessing, especially in the short timeframes. We could have an edge and backtest it all we want, but it still involves some guesswork and playing probabilities (uncertain outcome). All it takes is 1 big trader to blow you out of that position, especially in a thin market ("MOMENTUM IGNITION" as they call it). I say it involves guesswork, because nobody knows when the next big trade may squeeze you, or if an iceberg is pulled, or a spoof appears and spooks buyers etc. And we CERTAINLY will NEVER know when the president of the USA will put out a Tweet, causing a massive selloff in the index futures! So there's plenty of context that can be infused into each trade, depending on many factors.

The way I trade gaps is simple... never assume it will fill right away in the morning. If price isn't working towards the gap and it's trading away from the gap, I will take that direction instead of trying to fade it. I scalp and stay flexible on changing direction.

Like someone said above, price moving away from the gap and trying to go for HOD or LOD? Bingo. Happens all the time, on the smaller timeframes, like a 1m chart, price can move away from that gap for hours, then if we are ranging it could chop way back and fill the gap late in the session.

I feel like it's highly subjective, you can't just say "oh gap up, I go short instantly"... especially if you are scalping on the shorter timeframes where your goal is 10-50 points (on the Dow). On ES, I don't know what that translates to, maybe 3 points or something. So reading the tape can't hurt, if you are visual and need to see the speed and size of orders hitting...

There are days where we gapped up or down several sessions in a row. I'd hate to bet against any fresh trends right out the gate. I'd rather give it some time to show me it's "cards" and then proceed to use any clues to place my best "guess" and size the bet accordingly. At this point, if I miss a trade, I'm fine with that. There's always another setup.

Nothing wrong with the term "guessing" as long as you are using some kind of backtested system OR years of experience which is your edge itself and the income has proven the "edge" to be valid, which is based on experience (often hard to "code" something that we call "gut" feel, but is perfectly valid, yet hard to describe or teach).

There's a fun trade I take into the close, it happens maybe 1-3 times per month. I'm able to push my size on it with a tight stop, but anytime I attempt to teach it to someone, they refuse to take my advice 100% exactly. The guy I help, he asks me how do I know that it will work? I say, I have no f*ing clue if it will work, but in the past it has worked almost every time and if it doesn't, that's what the stop is for, so you don't blow your account on this 1 setup! Based on the fear of stopping out, my 1 student doesn't take this trade the way I tell him to...
What I'm saying ---- you can hand hold someone all the way, but they must be willing to take a trade that has some level of UNCERTAIN outcome, where you are guessing, even if it's a 80% win rate on that setup, it is still guessing.

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  #11 (permalink)
Escondido CA USA
 
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Great advice, thanks! Some of that echoes what my mentor has been telling me. "Your experience can be your edge." If that is the case I'm obviously still working on it.

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