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Trade at your own risk!
If you need help with reading and using these data please visit Fading Opening Gaps 101.Trade at your own risk!
Gaps are very popular trading tools. If you do a google search on market gap, it will come up about 34,000,000 entries. Many people worked on this subject of gaps 100's of years before internet was invented. Amongst the zillions of gap researchers, Masterthegap does a very good job primarily on calculating the probability for fading the opening gap. They also cover other markets as well as ES. I have come up with some ideas in the engine behind these numbers and I think they are great ideas. I am sure that others have come up with some other great ideas to calculate these probabilities. There are virtually unlimited ways to build this engine. So don't be surprised to see various people who calculate this probabilities are coming up with different numbers. The area of market is not quite inside the domain of exact science.
If you need help with trading in general, the best place I have found so far is LBR Group headed by market wizard Linda Raschke. Beware that most other sites are purely scams.
Yesterday's post said
"If the market opens
in HC area (i.e. Between High and Close), there is a 74% chance that it will hit the close with an excellent profit factor of 1.98. The long trades do not look as good. But if the market opens above 1080.25, according to market structure, there is 63% chance of winning with low sample size. Its corresponding data from timing is very good. It does not meet my criteria for high probability trades but it may be good for more aggressive traders.I can't see anything here that supports the second trade (the trade after the gap closes). "
Recap of yesterday Action:
ES opened at 1082.50 below 1087 which was my criteria for trading short. Long gaps were not appealing and did not quite meet my threshold for trading. As you see in the graph, it was a good decision and I saved myself a loosing trade.
Today's Summary:
Before Gap Play - Based on the market structure and timing data shown below, If ES opens between open and close of yesterday(1070.25 to 1082.25), I will go short with a stop of 5 and a target of close adjusted based on pivot points. Other situations are not appealing. This is not one of the best set ups, but it is good enough for me to trade.
After Gap Play - If ES opens between high and open of yesterday(i.e. between 1083.75 and 1082.50) and then closes the gap any time during the day, then there is 74% chance(with a profit factor of 2.37) that it will go up for additional 4 points.
ES pivot points:
R3 - 1098
Day 2 Hi - 1095.75
Fib 1.6 - 1094.50
R2 - 1090.75
Fib 1.27 - 1088.50
High - 1083.75
Open - 1082.50
R1 1080.50
Day 2 Low - 1080.25
Pivot - 1073.75
Close - 1070.25
Low - 1066.50
S1 - 1063.50
S2 - 1056.25
S3 - 1046.25
Gap fading probability numbers:
All numbers below are based on Profit Target = Gap Close, Stop = 5 points.
Emini S&P Future
What are these rows and columns?
| H | HO | OC | CL | L | All | All | ||
| Short | Short | Short | Long | Long | Longs | Shorts | ||
| PF | 1.29 | 2.37 | 1.33 | 1.09 | 0.89 | 0.97 | 1.46 | |
| PCT Prof | 56% | 74% | 62% | 58% | 52% | 70% | 64% | |
| Avg Loss | $25 | $31 | $29 | $31 | $30 | $147 | $29 | |
| Net Loss | $175 | $338 | $3,063 | $1,438 | $1,763 | $3,388 | $3,813 | |
| Loose | 7 | 11 | 105 | 47 | 59 | 23 | 132 | |
| Avg Win | $25 | $25 | $24 | $24 | $25 | $61 | $24 | |
| Net Win | $225 | $800 | $4,063 | $1,563 | $1,563 | $3,300 | $5,575 | |
| Win | 9 | 32 | 170 | 65 | 63 | 54 | 231 | |
| Avg P/L | $3 | $11 | $4 | $1 | $2 | $142 | $5 | |
| Net | $50 | $463 | $1,000 | $125 | $200 | $10,913 | $1,763 | |
| Total | 16 | 43 | 275 | 112 | 122 | 77 | 363 |
The following info is based on timing:
Emini S&P Future
What are these rows and columns?
| H | HO | OC | CL | L | All | All | ||
| Short | Short | Short | Long | Long | Longs | Shorts | ||
| PF | 1.72 | 0.74 | 1.47 | 1.19 | 2.06 | 1.27 | 1.58 | |
| PCT Prof | 56.52% | 44.00% | 78.81% | 78.95% | 56.36% | 65.88% | 72.17% | |
| Avg Loss | $274 | $296 | $390 | $375 | $303 | $324 | $323 | |
| Net Loss | $2,738 | $4,138 | $9,738 | $4,500 | $7,263 | $28,175 | $31,025 | |
| Loose | 10 | 14 | 25 | 12 | 24 | 87 | 96 | |
| Avg Win | $362 | $278 | $154 | $119 | $483 | $213 | $197 | |
| Net Win | $4,700 | $3,063 | $14,313 | $5,350 | $14,975 | $35,863 | $48,950 | |
| Win | 13 | 11 | 93 | 45 | 31 | 168 | 249 | |
| Avg P/L | $85 | $43 | $39 | $15 | $140 | $30 | $52 | |
| Net | $1,963 | $1,075 | $4,575 | $850 | $7,713 | $7,688 | $17,925 | |
| Total | 23 | 25 | 118 | 57 | 55 | 255 | 345 | |
Good luck and please direct any questions or suggestions!
Copyright © Ali Mohseni 2010 Charts are created using Tradestation software.
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