Opening Gap Trade

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The Regular Trading Hours (RTH) opening gap trade is a well known trading setup. This trading setup is certainly something I always consider at the opening of the new RTH trading session.

Guy did an analysis of this setup in his article titled "Fading the Gap"

From his article we learn the following historical statistics from the sample period he used...

"On average 76% or three quarters of all gaps close at some point during RTH."
Gaps on Monday were the least likely to fill and Thursday gap openings the most likely.
Opening gaps up to 7 ES points in size were filled during the session at least 70% of the time. This probability drops off surprisingly quickly above the 7 ES point range.

Given these basic concepts as a foundation, I thought it might be helpful to use this topic for further discussion, analysis and trading ideas.

Using the Daily Notes page for the ES... http://www.mypivots.com/dn/?symbol=58

We see Thursday's ES close was 1340.25

We are indicated to open around the 1330 level (which happens to be right at Wednesday's close)

This gives us a potential -10 point opening gap down in the ES

unofficial open on my screen for the ES = 1332.50

giving us an opening gap of - 7.75 ES points

Just on the outer edge of our 70% threshold...

NQ has filled it's opening Gap... I took that Long trade in the NQ from the 1760 level and closed at the prior days close at 1767 to start the day with a +7 win.

First attempt at the gap fill by the ES was rejected about half way into the gap (at 1336.50) and the ES is trading back down at the RTH lows.

market coming back with a vengence here...ER2 filled it's opening gap... ES just a point away for a gap fill as well.

And the ES is last to come home printing a gap fill to the tick.

I'd like to know a few things:

What happens when they don't fill ?

Do they often go the same amount of points in the direction of the gap ? So for today we'd be subtracting 7.75 points from the opening to get a lower target...

Do the statistics change if we open OUTSIDE the previous days range?

What happens if we open in or outside of value....?

I like the gaps that start moving in the direction of the gap and then lose power. Today was a perfect example...

When I started that gap study I had about 3 questions that I wanted answered. I finished it answering about 20 questions and accumulating another 10,000 questions. The number of stats and permutations you can do is unlimited. Your question Do the statistics change if we open OUTSIDE the previous days range? I believe that I answered on one of those pages, I called that type of gap an extreme gap - if I remember correctly.

Do you have the monthly p&l for the Fading the Gap trade post Jan 2007? It says in the study that you may be able to update this data if requested.

Martin, it did say that but I've had it changed so it no longer reads that. We might regenerate the data at some point in the future to cover more months and will then probably generate it for more symbols at the same time.

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great gap play in the ES today. Huge rally sold near the R2 pivot to watch it gap fill and then some.WOOT!

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