By: Scott Andrews of Master the Gap
I am a gap trader. Specifically, I 'fade' the opening gap (i.e. go short when the gap is up or long when the gap is down). My first research breakthrough many years ago was in recognizing that gap selection was the “door” to making profits and the “key” to that door was to focus on the location of the opening price.
Using the prior day's direction (up or down) and the open, high, low, and closing prices, I created ten “zones” and each provides tremendous insight into the probability of a gap filling or not. Click here to view my Gap Zone Map with historical odds for the S&P 500. My selection strategy has evolved over the years to include market conditions, patterns and seasonality, but zones remain the foundation of my gap fade selection criteria.
So why do opening zones work? They inherently incorporate : Continue reading "Know the Zone & Improve Your Gap Trading"
I recently had the opportunity to sit down to dinner with Scott Andrews from MastertheGap.com, and at the end of the dinner I honestly said to myself, this guy has got something here. Now there's a lot of "gap" research and insight out there, but Scott takes it to a different level. So if you have some time, please read his article, fire away with the comments, and visit his site MastertheGap.com.
If you are looking to become a serious trader, there are two critical questions that you must answer; “What is my primary trade setup?” and “What is my edge?”
When I started out, it seemed like every book, every website, and every trader touted a different setup – each with its own merits. But I knew that I needed a trade that fit “me” and my trading personality. After lots of searching and introspection I settled on fading (i.e. trading the opposite direction of) the opening gap in the indices (e.g. S&P 500, Dow 30, Nasdaq 100, Russell 2000). Not only do opening gaps occur daily and offer significant profit opportunity,but they have an inherent directional bias. In fact, over 70% of gaps will retrace from their opening price back to the prior session closing price that very same day, often in the first hour of trading.
Continue reading "Why Fading The Opening Gap Is The Ideal Setup for Me"