How To Trade: Full Stop

[The Expert]

The mystery value being the overnight gap.

Well done T42, good on you. Gaps are relevant, but only when the size of the Gap is a certain % of the ?

DT is currently thinking about this one, I would say.

 

[The Expert]

So in short,
1. the open moves in the same direction of the overnight gap.
2. The distance of open to close tends to be greater than the overnight gap.

We also seem to be chosing stocks with really small gaps. TE earlier posted a table of economic events for a number of stocks, so presumably those events trigger a situation where the overnight gap is small and what you said above tends to hold.

But where do the weekly and monthly charts (assuming that's what they were in the BDX chart) come into all this?

Edit: Wait, I am sort of thinking, looking at various charts, and what you said, if you open a position at the open of the market, biased according to the gap on the day earning news comes out, place a stop at the other end of previous day's range (i.e. if the stock gaps down, you open a short trade and place stop at previous day's high), and cloe the trade at the close of day, then you have the basis of a decent system.

Edit 2: Also, for long trades we only get involved in stocks that have beaten expectations and have a low short interest ratio.

I am happy to see that you are thinking, but do not start to see things that may not be there. You must ask yourself, as a daytrader, what is my objective for today, and how long do I need to attain my objective.

Now, this is why trading the stock market can be the best job in the world, for if your objective is not materializing, you can quickly switch goals in order to achieve your objective. In any normal business, it takes time and effort to switch goals quickly, but in the stock market, it is easy as ABC, once you are set up and ready.

There is a big difference between trading a system, and a systematic approach to trading.

 

[tss42]

I am happy to see that you are thinking, but do not start to see things that may not be there. You must ask yourself, as a daytrader, what is my objective for today, and how long do I need to attain my objective.

Now, this is why trading the stock market can be the best job in the world, for if your objective is not materializing, you can quickly switch goals in order to achieve your objective. In any normal business, it takes time and effort to switch goals quickly, but in the stock market, it is easy as ABC, once you are set up and ready.

There is a big difference between trading a system, and a systematic approach to trading.

I may be getting ahead of myself again, but regarding timeframes, I'd think it depends on the profit target. If, let's say I set my target to 1/4th of the average daily range, then I'd expect to achieve that in no longer than 1/3rd of the day.

Or is that too simplistic an approach?

Regarding your other question, sounds like gaps are interesting only if they are a certain % of the day's range.

 

[The Expert]

I may be getting ahead of myself again, but regarding timeframes, I'd think it depends on the profit target. If, let's say I set my target to 1/4th of the average daily range, then I'd expect to achieve that in no longer than 1/3rd of the day.

Or is that too simplistic an approach?

Regarding your other question, sounds like gaps are interesting only if they are a certain % of the day's range.

The only thing that is certain about trading, is movement. As a daytrader you must be able and willing to go with the movement. If you let your mind play tricks on you then you will end up a net loser. To stop your mind wandering you must focus. To focus you must have a plan. To have a plan you must do some hard work to get to the stage where your plan is working effectively and more importantly, profitably. The profitability ratio will be a function of your ability to construct a valid plan and then carry it out swiftly and effectively.

I will post a picture that will assist some of you in seeing what a section of a valid plan looks like. Do not expect to see any regular TA from The Expert, as TA really means Trading Attitude.

Let me consult my primary section and post the picture for you shortly.

 

[The Expert]

Here you go. Simple and effective with no distractions. Objective is to ?

 

[The Expert]

Now DT, please point out to the class the grid reference for this one.

Hint Hint, I have already mentioned it several times.

 

[The Expert]

And finally, for those who like to predict what might happen, many will now say that this was obvious, but that is not the best way to look at it.

 

[DionysusToast]

Well done T42, good on you. Gaps are relevant, but only when the size of the Gap is a certain % of the ?

DT is currently thinking about this one, I would say.

Indeed.

This work coincides nicely with something I was already doing - analysis of my usual mornings work to find movers.

Right now - I'd say that 20% of the stocks I pick pre-market end up being movers on the day. If I can improve upon this, if that is possible, then my life becomes easier.

Now - I am ANTI math if it comes down to cookie cutter formula's for entry rules. I like to know the WHY behind any trading rule and then if it sounds reasonable, it can be used.

So - here I am wading through yesterdays but this time with the new range indicators. There does appear to be at least a casual link between a gap that is larger than the prior days range and a stock that has a nice healthy move for the rest of the day. So often, the big gappers stay where they are which is why pre-market scans for gappers can throw up a lot of stuff that doesn't really help you for the day.

Like I say - it's a casual link I can see thus far and it appears in many cases to trigger at least a 1 ATR move from the open.

I can't stress enough how much this is just a casual observation and NOTHING you can take to the bank though. It may have absolutely nothing to do with what TE is thinking of.

 

[ntc]

And finally, for those who like to predict what might happen, many will now say that this was obvious, but that is not the best way to look at it.

I believe that the chart in post 209 was for ABC (4 across and 6 down on your grid from post 208) while this chart is for AAPL (3 across and 8 down on the grid). The charts are, again, (highs - lows) with (closes - opens) for the last 30 days.

 

[DionysusToast]

I believe that the chart in post 209 was for ABC (4 across and 6 down on your grid from post 208) while this chart is for AAPL (3 across and 8 down on the grid). The charts are, again, (highs - lows) with (closes - opens) for the last 30 days.

Agreed. 12th Jan -> 24th Feb in both cases.

 

[DionysusToast]

Indeed.

This work coincides nicely with something I was already doing - analysis of my usual mornings work to find movers.

Right now - I'd say that 20% of the stocks I pick pre-market end up being movers on the day. If I can improve upon this, if that is possible, then my life becomes easier.

Now - I am ANTI math if it comes down to cookie cutter formula's for entry rules. I like to know the WHY behind any trading rule and then if it sounds reasonable, it can be used.

So - here I am wading through yesterdays but this time with the new range indicators. There does appear to be at least a casual link between a gap that is larger than the prior days range and a stock that has a nice healthy move for the rest of the day. So often, the big gappers stay where they are which is why pre-market scans for gappers can throw up a lot of stuff that doesn't really help you for the day.

Like I say - it's a casual link I can see thus far and it appears in many cases to trigger at least a 1 ATR move from the open.

I can't stress enough how much this is just a casual observation and NOTHING you can take to the bank though. It may have absolutely nothing to do with what TE is thinking of.

OK - forget that theory !

Baby woke me up at 1am, 3am and 5am last night. Bless her little cotton socks....

My brain is no longer functioning.

I will say that the relationship between the GAP & ATR looks interesting though.

 

[tss42]

Would anyone share their thoughts on the two BDX charts in posts 182 and 183 by The Expert? Ithought they are the weekly and monthly charts, respectivey, of BDX and the blue bar values are indeed matching with my calculation of (high - low), but not all the red bars are matching my values of (close - open).

Thanks.

 

[temporarilylight]

For anyone joining the thread late, we've learnt that some stocks have quite big ranges, and have posted them in bar charts form

 

[Trader333]

So often, the big gappers stay where they are which is why pre-market scans for gappers can throw up a lot of stuff that doesn't really help you for the day.

That will depend on whether the gap is caused by professionals or amateurs. If it is amateurs then it will close and the clues to this are in volume.


Paul

 

[Spcboe]

you're doing pretty good TE. definitely have us thinking outside the box, which is a good thing.:clap::clap:

just curious, how many trades do you average per day? i am surprise no one else asked.

 

[DionysusToast]

That will depend on whether the gap is caused by professionals or amateurs. If it is amateurs then it will close and the clues to this are in volume.


Paul

In my opinion - this is total nonsense.

 

[Trader333]

In my opinion - this is total nonsense.

OK then please explain what causes gaps to form and why do some close and others carry on ?
Which ones would you trade in opposition to the gap and why ?
Which would you trade in the continued direction of the gap and why ?


Paul

 

[tss42]

OK then please explain what causes gaps to form and why do some close and others carry on ?


Paul

I never understood gaps, the mechanism of their creation and their purpose. This promises to be an interesting and enlightening discussion, so I am waiting in great anticipation.

 

[Charlton]

Would anyone share their thoughts on the two BDX charts in posts 182 and 183 by The Expert? Ithought they are the weekly and monthly charts, respectivey, of BDX and the blue bar values are indeed matching with my calculation of (high - low), but not all the red bars are matching my values of (close - open).

Thanks.

Yes BDC weekly and monthly - High - low and Close - Open. Bear in mind that the current week and month have not closed yet, so those bars are not fixed

See attachments

Charlton

 

[DionysusToast]

OK then please explain what causes gaps to form and why do some close and others carry on ?
Which ones would you trade in opposition to the gap and why ?
Which would you trade in the continued direction of the gap and why ?


Paul

All of these questions have nothing at all to do with how the opening price gets set. There is no such thing as a professional and amateur gap.

A 'professional' cannot gap a stock down if there is a better bid at the open. In the absence of better bids, it is the market makers/specialists job of being the buyer of last resort. The MM will put in a limit order at such a price where they feel they won't get their pants pulled down and end up taking on a lot of stock at prices they can't offload them. This is to be expected considering the risk they take in this role. If they had to do anything else - we wouldn't have marker makers.

I have seen pre-market sales of 1 lot which is quite obviously the MM selling to himself to set the tone of the market.

There is no such thing as a 'professional' and 'amateur' gap that can be detected by volume. Are you really expecting to make any interpretation based on the volume of the first bar ? Are you expecting that first bid by the MM/specialist to be for high volume ? Why on earth would they do that ?

As to why some gaps fill and some don't. Supply & demand. Fundamentals. People finding value at the new level. Nothing at all to do with a pro or amateur gap.