Wednesday, February 15, 2006
Lessons II
The lesson info comes Huber at Trade the Markets.com. He gives several seminars at the exchanges sites.. I believe it was the CBOT but not sure.
Gaps.
1. Best gaps are in opposite directions of previous day's move or prevailing trend.
2. Best gaps are over 2 and under 8 points on ES or S & P 500.
3. Use 3:15 (ct) close
4. Gaps are a self fullfilling prophecy because so many people play them.
5. Gaps are designed to fake you out so you get stopped before they close.
6. Gaps that don't fill are called "Pro Gaps"... too high to buy and market will move without them. Write down those prices because open gaps always fill with 80% in next 5-10 trading days. They act like black holes.
Methods
1. Use pre-market Vol to see how much power behind the move. The less volume the more likely that the gap will fill. If there is a lot of volume then there is a lot of power behind the move. Be careful on high vol days. They may not fill. If they don't then look for future days to return to those levels.
2. If the pre-market vol is really high then look for break away... Don't play gap, play other direction. Then you want to buy the gap.
3. On moderate volume you should still play gap but take 1/2 off at the 50% retrace level and move stop to BE. the idea is that it may not make it all the way there but you are taking partial profits before to protect yourself. Also, on these days you may want to trade fewer contracts since the odds are quite as good.
4. When Vol is very high, then don't trade gap to fill. Trade the continuation of the gap, don't trade the gap to close. Look for entries in direction of gap and for it not to fill.
5. If the gap is less than 4 then use 1.5 to 1. Risk reward ratio. If more than 4 points then us a 1 to 1 risk reward ratio. Use wider stops because it increases your wins to 85%. If you use tighter stop you will change win loss ratio. On those med vol days when you use the 1/2 gap fill trade and set balance to BE you have very low risk.
If you want the actual gap fill data for days of the week and for points just do an internet search for the gap fill study and read it. It's out there somewhere.
Trader X
Gaps.
1. Best gaps are in opposite directions of previous day's move or prevailing trend.
2. Best gaps are over 2 and under 8 points on ES or S & P 500.
3. Use 3:15 (ct) close
4. Gaps are a self fullfilling prophecy because so many people play them.
5. Gaps are designed to fake you out so you get stopped before they close.
6. Gaps that don't fill are called "Pro Gaps"... too high to buy and market will move without them. Write down those prices because open gaps always fill with 80% in next 5-10 trading days. They act like black holes.
Methods
1. Use pre-market Vol to see how much power behind the move. The less volume the more likely that the gap will fill. If there is a lot of volume then there is a lot of power behind the move. Be careful on high vol days. They may not fill. If they don't then look for future days to return to those levels.
2. If the pre-market vol is really high then look for break away... Don't play gap, play other direction. Then you want to buy the gap.
3. On moderate volume you should still play gap but take 1/2 off at the 50% retrace level and move stop to BE. the idea is that it may not make it all the way there but you are taking partial profits before to protect yourself. Also, on these days you may want to trade fewer contracts since the odds are quite as good.
4. When Vol is very high, then don't trade gap to fill. Trade the continuation of the gap, don't trade the gap to close. Look for entries in direction of gap and for it not to fill.
5. If the gap is less than 4 then use 1.5 to 1. Risk reward ratio. If more than 4 points then us a 1 to 1 risk reward ratio. Use wider stops because it increases your wins to 85%. If you use tighter stop you will change win loss ratio. On those med vol days when you use the 1/2 gap fill trade and set balance to BE you have very low risk.
If you want the actual gap fill data for days of the week and for points just do an internet search for the gap fill study and read it. It's out there somewhere.
Trader X
