Trading the Gaps

2pts. Was aiming for 2.75pts but took ages to get filled. Slippery today. Short close against very bullish sentiment always makes me feel a bit dubious.
 
Thought I'd send in my play today for comments, questions, etc. I am new to the opening gap play. Pre-market (9:06 EST)short at 99 with a 95.75 target which was filled at 9:42 EST. (question about premarket plays?) Tried second short at 95.75 but stopped at 96.75 (second profit target stop only 1pt from trade...seems too close hence the quick stop). I did place a third position at 10:13 EST long for 2 pts (filled) but this is not a gap play. Thanks for your help.
 
So my strategy is simple:

1. Is gap < 4pts from yesterdays RTH close
2. Has any news come out in between that makes me think that the gap won't close
3. Has any pre-market support or resistance revealed itself between RTH close and RTH open that would indicate that the gap could not be filled.

If everything looks healthy then I go in at the market on open, but on marginals wait a few seconds to see where it might go (this is not fool-proof, but after enough screen-time, I think you get a feel where the sentiment might lie). I exit using a limit order on close or very close to close.

I don't do gaps > 4pts because I suspect that institutional positioning may have occurred outside of RTH.

I don't do pre-market because the price IMO is still meandering, even if people are jumping the gun 30mins before market open and it ultimately is volume driven.

I'm suspect of S&R developing pre-market which interferes with the gap as it gives a hint that somebody is quietly creating that level and knows something.

Ilir has a completely different way of trading gaps which is a lot more courageous imo. I go for really safe, well as safe as you get in this game.
 
Although I adhere to the thought process Robster details here, for me the underlying rule is very simple: if there is a gap, I take a position [at a moment I deem suitable, according to a variety of inputs, including Robster's].

By the way, Robster. I sometimes address you as Rob here. Is that correct for me to do?
 
m_cat12 said:
Thought I'd send in my play today for comments, questions, etc. I am new to the opening gap play. Pre-market (9:06 EST)short at 99 with a 95.75 target which was filled at 9:42 EST. (question about premarket plays?) Tried second short at 95.75 but stopped at 96.75 (second profit target stop only 1pt from trade...seems too close hence the quick stop). I did place a third position at 10:13 EST long for 2 pts (filled) but this is not a gap play. Thanks for your help.
Click to expand...

That is a great play which unfortunately I haven't done much of for 2010. Did a lot of that for much of 2009. I have a trading buddy I discuss strategies with, and there have been some very interesting conclusions on premarket vs. at open entries. Bottom line: premarket does afford some entries that are not possible after open, but it is not necessarily a rule of thumb. Btw, reason I do not play premarket has nothing to do with this analysis. I have just developed a habit of sleeping till 8am EST ;).
 
Omoh101 said:
Which other markets can you use the gap trading strategy on?
Click to expand...

Opening gaps are a popular tool used by day traders specializing in stocks. However, volume is KEY for stocks, a lot more so than futures. As far as other instruments, I am not really too familiar with them.
 
3pts - enjoyed that one, went in at 2.26pm slighly earlier to take advantage of the fact that support of yesterday's low was discovered after the sell-off from the unemployment figures.

Sometime you just have to know when to break your rules.

Looking for intraday support now for entry long for another swing trade.

re: other mkts.

dow, nasdaq, russell and single stock futures.

each market has it's own personality so your gap trading will vary according to mkt. Ilir and I only play ES and as you can see, we approach from the same information but execute very differently.
 
Rob, I envy your timezone. I know I'll be able to partake when I visit home in the Adriatic shores this summer hopefully (GMT -1). Hope not too much sand gets into the laptop ;)
 
Today's trade was fun. Entered premarket 9:09EST at 95. MACD, Stoch, and MA's were all pointing upwards so I decided to get in before the open. I also place PivotPoints on my chart from PivotFarm for S/R zones. Reached first target at 9:35EST at 98.25. Placed second trade at 9:36EST at 98.25 and was out at 9:51EST at 99.50. Based on pivot points, and overnight highs, I decided to not go for a third.

Im also looking at price action as hopefully I'll be able to remove my indicators and trade solely off this oneday. Indicators provide a sort of 'security blanket' to verify strength of movement.

Thanks very much Rob and Ilir for your feedback! Especially the information on premarket plays. Still toying around with that one. I'd like to have my rules solidly in place shortly. Although, I feel that much of trading is depending on your instincts and being flexible. Although if you google 'trading plan', apparently you cannot be successful unless you create a trading manifesto and never trade outside of written rules. Not sure about this one yet.
 
Yeah but trading your afternoon session means I have a limited social life Mon-Fri when I'm in a swing trade. It's not all sunshine and roses on GMT
 
Trading plan is a must. Mine is written, and covers all things, down to the small minutiae. To me trading is a business, and a good business has to have rules and policies. Took me a long time to externalize the instinct to take a trade when things 'looked' right, and instead focused on those setups that have been properly vetted by the R&D side of the 'business' (paper trading). Else, you may have a great few days, but the centrifugal forces of euphoria will spin you out of your axis.
 
m_cat12 said:
Today's trade was fun. Entered premarket 9:09EST at 95. MACD, Stoch, and MA's were all pointing upwards so I decided to get in before the open. I also place PivotPoints on my chart from PivotFarm for S/R zones. Reached first target at 9:35EST at 98.25. Placed second trade at 9:36EST at 98.25 and was out at 9:51EST at 99.50. Based on pivot points, and overnight highs, I decided to not go for a third.

Im also looking at price action as hopefully I'll be able to remove my indicators and trade solely off this oneday. Indicators provide a sort of 'security blanket' to verify strength of movement.

Thanks very much Rob and Ilir for your feedback! Especially the information on premarket plays. Still toying around with that one. I'd like to have my rules solidly in place shortly. Although, I feel that much of trading is depending on your instincts and being flexible. Although if you google 'trading plan', apparently you cannot be successful unless you create a trading manifesto and never trade outside of written rules. Not sure about this one yet.
Click to expand...

Having a trading plan is not the same a applying discretion to trade execution.

On Sunday evenings, I generally do about 3-4hrs prep for the week ahead covering news, other mkts, fundamentals, opinions and some technical analysis (which for me is the 200 MA only). I generate my context for the week ahead from this and possible themes. Basically a geopolitical/financial view of the world.

I play trend, reversal and breakouts on ES using price action so understanding the world and mood from the previous week is important in a futures mkt that leads and intertwines significantly to other world mkts.

Every day, I do a plan for the day about an hour before RTH which set's out possible plays and entries for the day. It sets the tone for the day with possible plays to minimise risk.

Then when the mkt opens, I use all the cognitive learning from trading price to make calls on whether those plays are fulfilled or not and enter/exit accordingly.

So as you can see, having a 'plan' is not the same as using your head and gut in trading price in a dynamic mkt.

If you're going to learn to trade price only, get rid of your indicators and feel the burn for a while until you get the hang of it. It's hard work but ultimately worth it imo.
 
Well said. I will revisit my trade plan immediately. Thank you both.

So this thread does not get derailed,...back to gap trading the ES.
 
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