Dow 2007

CBOT Mini Dow Future – Opening Gap Strategy

This is what I have so far. Not my idea obviously, but I cannot find a fully comprehensive web source for this. I have taken various ideas, and am working on backtesting them right now. There are several ways of trying to determine whether a gap will be filled or not. However, I am having some difficulties with timeframes etc. I am going to do some more thinking and testing, but here is what I have so far.

Also, here are the sources I have used just in case anyone would like to check that my current interpretations are correct.

http://www.cbot.com/cbot/pub/cont_detail/0,3206,928+14719,00.html
http://www.trade2win.com/knowledge/articles/general_articles/trading-opening-gap/page1


Any further guidance would also be appreciated. I am going to tighten this up tomorrow, and backtest into Monday. The system does not trade following options expiry, a holiday, or a weekend for the time being, so the first signal can be given at 14:30 London time Tuesday if I have done it by then.

The degree of my backtesting will dictate whether I paper trade it or SB it at £1pp. I am trying to develop a system which is backtested, consistent, mechanical, and creates a maximum of 4 signals per week. This should help with my trading issues.

Thoughts?

CBOT Mini Dow Future – Opening Gap Strategy

Hypothesis

A statistically reliable number of gaps close within the intraday cash market session. This could form the basis of a partially mechanical gap fading strategy.

Definitions

Cash session: 14:30-21:00 London time. (open-close) Nothing to do with cash prices.
Gap: Futures price at 14:30 being greater or less than previous day at 21:00
Common gap: gap which is likely to close within the cash session
Breakaway gap: continuation gap which causes further movement in that direction
Range: High – Low (during the cash session)

Requirements

A mechanical system for defining the type of gap, along with a backtest of fading such gap to show the probabilities and risk / reward of fading the gap. When a valid gap is defined, the system should state the risk reward, stoploss placement, and trade direction. Discretion can be used for the entry providing that the risk / reward is not violated.

Factors

Gap size – large gaps are more likely to be continued than filled
Support resistance levels, including premarket (21:00-14:30) Low and High, previous cash session high, previous cash session low
Strength of premarket activity – do not fade gaps when premarket volume is high, or when large orders may have accumulated.
Major news, economic numbers, fundamental factors which may affect the validity of a suspected common gap

Specifics
A large gap is > 40% of previous days range
High premarket volume is > 120% of the average premarket volume for the previous 5 premarket sessions
Large orders accumulate before the opening on Monday, and after Holidays
No trades should be placed following a premarket number, or other major announcement (gov intervention, war, etc)

Setup

1.Check the trading day is not a Monday, or a day following a holiday
2.Check there are no numbers due before the open, or within the first hour of trading
3.Check there have been no major news releases within the last 24h
4.Check premarket volume – is it unusually high? If so, no trade
5.Make a note of premarket high and low print, and the previous cash session highs and lows.
6.Determine key S/R levels for the last trading week, including high and low of week
7.Before the open, determine the gap size. Is this a large or small gap? (percentage of previous days range)
8.When the market opens, did it gap up or down? Is this a buy or a sell signal?
9.Is there confirmation? Wait for an up (down) gap to stop making highs (lows), look for relative highs lows. Check tick – it should be above -300 and below 300 for gaps down and up respectively. If not, continuation likely.
10.Where would the entry be? What is the reward (target is previous days close)? What is the risk (where is the best place for a stop)? Is the risk:reward consistent with the average win/loss and win %? If so, enter.

Further suggestions

Research validity of the NYSE $TICK for confirming gaps
Consider better entry criteria – what timeframe for the relative lows / highs. Enter when price breaches the open in the opposite direction?
Where is the best place for a stop? Mechanically, or based on S/R? Percentage of range, or fixed amount?
 
lurkerlurker said:
This is what I have so far. Not my idea obviously, but I cannot find a fully comprehensive web source for this. I have taken various ideas, and am working on backtesting them right now. There are several ways of trying to determine whether a gap will be filled or not. However, I am having some difficulties with timeframes etc. I am going to do some more thinking and testing, but here is what I have so far.

Also, here are the sources I have used just in case anyone would like to check that my current interpretations are correct.

http://www.cbot.com/cbot/pub/cont_detail/0,3206,928+14719,00.html
http://www.trade2win.com/knowledge/articles/general_articles/trading-opening-gap/page1


Any further guidance would also be appreciated. I am going to tighten this up tomorrow, and backtest into Monday. The system does not trade following options expiry, a holiday, or a weekend for the time being, so the first signal can be given at 14:30 London time Tuesday if I have done it by then.

The degree of my backtesting will dictate whether I paper trade it or SB it at £1pp. I am trying to develop a system which is backtested, consistent, mechanical, and creates a maximum of 4 signals per week. This should help with my trading issues.

Thoughts?

CBOT Mini Dow Future – Opening Gap Strategy

Hypothesis

A statistically reliable number of gaps close within the intraday cash market session. This could form the basis of a partially mechanical gap fading strategy.

Definitions

Cash session: 14:30-21:00 London time. (open-close) Nothing to do with cash prices.
Gap: Futures price at 14:30 being greater or less than previous day at 21:00
Common gap: gap which is likely to close within the cash session
Breakaway gap: continuation gap which causes further movement in that direction
Range: High – Low (during the cash session)

Requirements

A mechanical system for defining the type of gap, along with a backtest of fading such gap to show the probabilities and risk / reward of fading the gap. When a valid gap is defined, the system should state the risk reward, stoploss placement, and trade direction. Discretion can be used for the entry providing that the risk / reward is not violated.

Factors

Gap size – large gaps are more likely to be continued than filled
Support resistance levels, including premarket (21:00-14:30) Low and High, previous cash session high, previous cash session low
Strength of premarket activity – do not fade gaps when premarket volume is high, or when large orders may have accumulated.
Major news, economic numbers, fundamental factors which may affect the validity of a suspected common gap

Specifics
A large gap is > 40% of previous days range
High premarket volume is > 120% of the average premarket volume for the previous 5 premarket sessions
Large orders accumulate before the opening on Monday, and after Holidays
No trades should be placed following a premarket number, or other major announcement (gov intervention, war, etc)

Setup

1.Check the trading day is not a Monday, or a day following a holiday
2.Check there are no numbers due before the open, or within the first hour of trading
3.Check there have been no major news releases within the last 24h
4.Check premarket volume – is it unusually high? If so, no trade
5.Make a note of premarket high and low print, and the previous cash session highs and lows.
6.Determine key S/R levels for the last trading week, including high and low of week
7.Before the open, determine the gap size. Is this a large or small gap? (percentage of previous days range)
8.When the market opens, did it gap up or down? Is this a buy or a sell signal?
9.Is there confirmation? Wait for an up (down) gap to stop making highs (lows), look for relative highs lows. Check tick – it should be above -300 and below 300 for gaps down and up respectively. If not, continuation likely.
10.Where would the entry be? What is the reward (target is previous days close)? What is the risk (where is the best place for a stop)? Is the risk:reward consistent with the average win/loss and win %? If so, enter.

Further suggestions

Research validity of the NYSE $TICK for confirming gaps
Consider better entry criteria – what timeframe for the relative lows / highs. Enter when price breaches the open in the opposite direction?
Where is the best place for a stop? Mechanically, or based on S/R? Percentage of range, or fixed amount?
Click to expand...




This has got to be the mother of all systems... You make it work and you can be the daddy. :eek:

I tried following it and gave up after three sentences. :eek:

Good luck old boy... ;)
 
Atilla said:
This has got to be the mother of all systems... You make it work and you can be the daddy. :eek:

I tried following it and gave up after three sentences. :eek:

Good luck old boy... ;)
Click to expand...

We all seem to be pretty active at night lol

I replied in lurker's journal...
http://www.trade2win.com/boards/showthread.php?t=24886

I wouldn't call this "thinking out loud" a system, but each new approach has potential if one is willing to dig deep and test it thoroughly. Lurker has to find something that he feels comfortable with and a lot of people (including myself) have given him the basics of a system (if not more).
 
barjon said:
A year is no time at all in all this. You seem still at the stage of lurching from idea to idea and - to my eye at least - overtrading like mad. That's fine if you just want to enjoy the excitement of the chase and not worry too much if you make or lose money (like my play account :devilish: ). However, if you want to do this as a business then listen to what everyone's been telling you; forget trading for a while; sort out your precise methodology; test it; trade it small til you're satified with it; then stick to it and ignore all other temptations.

cheers

jon
Click to expand...

This is my last post about this subject, otherwise this thread will revolve completely around lurker instead of the dow :) I just wanted to say I second barjon's comments.

Perhaps you are in need for a break lurker... you seem to be picking new systems each weekend and hat's off for the effort with coming up with something new. But you've already have more than you need. Like I said before and I'll say again, the only holy grail is between your ears.

A break from trading can actually work more productive than you can imagine.
My time off recently has given me an "Aha-erlebnis" and I am very much looking forward to adopting my system to the new insights I have developed. Basically it concerns my exits which have been the issue of quite some debate (and the start of a separate thread, you know which one I'm talking about).

But let's not talk about me. I just wanted to stress that while I have a good "feeling" for the adjustments I want to make, I will not trade this thing live until I have completely analzyed at least several months of charts to see what effect the changes would have on my win/loss, profit/loss, etc. Next to that, I'll papertrade it for a month and only if all of the results add up I will start trading it live. Perhaps I am being stubborn, but it's the only way I gain enough confidence in it. Others might feel confident enough to put it on after 20 days of testing.

But if I need that kind of testing just to see the effect of one change in variables or parameters, than I'm sure you understand that building a system from scratch needs a whole lot more? Some people will backtest years of data... I'm not saying it's necessary but I'll be a boost in confidence.

I hope you don't mind barjon but this is something you actually told me some time ago (at a time I wasn't as receptive as I should have been).

Originally Posted by barjon
"As far as how much is concerned, I suppose the classic answer is as much as you can making sure to cover all phases (up, down, sideways) of the market. I did about three years, I think, but I must admit that most of the fine tuning came via the paper trading phase and by a continuing review of every 100 trades. The advantage to that is that I fine-tune in relation to current market conditions which is also a disadvantage when those conditions change."​

I realize there are others that aren't in favour of backtesting because there's nothing like real time trading with real money and real losses. All of which is true, but if you don't have any confidence in your system, you'll certainly won't gain any of it be going live straight away and encountering your first losing streak from the beginning. But that's food for a whole different discussion.
 
firewalker99 said:
We all seem to be pretty active at night lol

I replied in lurker's journal...
http://www.trade2win.com/boards/showthread.php?t=24886

I wouldn't call this "thinking out loud" a system, but each new approach has potential if one is willing to dig deep and test it thoroughly. Lurker has to find something that he feels comfortable with and a lot of people (including myself) have given him the basics of a system (if not more).
Click to expand...

I'm back from my poker night... Played four games did well on two and got knocked out in early stages of the other two. That's why I'm home early.

By the way guys I was applying fibonacci in poker it works great.

Start of with small bets like 10 chips, 20 chips and 30chips and if anybody raises than I reraise to 50 chips or what ever the next addition is. It draws players in on the low counts and then scares them away on the high bets. Really worked great.

Some of the bluffs got called and then the cards turned against me and so two good rounds and two bad.

We have a league system in place by the way so we play for points. Small prices at the end of season. We have four league seasons in a year based on points.

How comes everybody up so late... ? :)
 
Just to get the ball rolling for the new week

The Dow trended steadily higher into the Close and eventually ended the day with a big 143 point gain. The Dow is now at a decision point at the key 13,400 level.

The Daily and 60 Minute Charts show the Dow has reversed course rather nicely after bottoming out at 12,500 last week. The index is now within a stone's throw from the 13,400 level, which is the point at which the major upper trend line crosses. This line has rejected the Dow in the past, so we will likely to it for direction next week. If the Dow can break through 13,400, we could see another run to 13,700. Otherwise, a failure to rise above this zone could make for another round of key selling.

Short Term Dow

The Dow closed the day above an intraday lower trend line, seen in the 5 Minute Chart. Watch this line closely for early direction Monday at 13,325.

Medium Term Dow

In the medium term, we are still out of the market and will hold off on Longs at this point. We will watch 13,150 for Shorts; using 20 point stops.

( Signalwatch )
 
Pat494 said:
Just to get the ball rolling for the new week

The Dow trended steadily higher into the Close and eventually ended the day with a big 143 point gain. The Dow is now at a decision point at the key 13,400 level.

The Daily and 60 Minute Charts show the Dow has reversed course rather nicely after bottoming out at 12,500 last week. The index is now within a stone's throw from the 13,400 level, which is the point at which the major upper trend line crosses. This line has rejected the Dow in the past, so we will likely to it for direction next week. If the Dow can break through 13,400, we could see another run to 13,700. Otherwise, a failure to rise above this zone could make for another round of key selling.

Short Term Dow

The Dow closed the day above an intraday lower trend line, seen in the 5 Minute Chart. Watch this line closely for early direction Monday at 13,325.

Medium Term Dow

In the medium term, we are still out of the market and will hold off on Longs at this point. We will watch 13,150 for Shorts; using 20 point stops.

( Signalwatch )
Click to expand...


Short on the DOW from 13317. No SL. Target - any profit zone will do. 13160 for starters.

4 hour charts showing fall. MAs, MACD, Stochs, RSI all down. Pretty confident about this one.

1 hour charts showing BB breakout to the down side.

CountrySide received 2bn aid and still looks vulnerable. I reckon a number of big companies are probably worried and under-estimate their exposure. Call me a Mr Sceptical if you must... Trust no one..

Another .25% on the cards. Will it be enough?

Feeling very bullish about gold and the euro again.

Good trading everyone. :)
 
Pat494 said:
Just to get the ball rolling for the new week

The Dow trended steadily higher into the Close and eventually ended the day with a big 143 point gain. The Dow is now at a decision point at the key 13,400 level.

The Daily and 60 Minute Charts show the Dow has reversed course rather nicely after bottoming out at 12,500 last week. The index is now within a stone's throw from the 13,400 level, which is the point at which the major upper trend line crosses. This line has rejected the Dow in the past, so we will likely to it for direction next week. If the Dow can break through 13,400, we could see another run to 13,700. Otherwise, a failure to rise above this zone could make for another round of key selling.

Short Term Dow

The Dow closed the day above an intraday lower trend line, seen in the 5 Minute Chart. Watch this line closely for early direction Monday at 13,325.

Medium Term Dow

In the medium term, we are still out of the market and will hold off on Longs at this point. We will watch 13,150 for Shorts; using 20 point stops.

( Signalwatch )
Click to expand...

Thanks Pat, educational stuff.
sure is quiet here today, guess everyone took Oscar's advice about the upcoming holiday. i.e. don't trade this week
 
Atilla said:
Short on the DOW from 13317. No SL. Target - any profit zone will do. 13160 for starters.

4 hour charts showing fall. MAs, MACD, Stochs, RSI all down. Pretty confident about this one.

1 hour charts showing BB breakout to the down side.

CountrySide received 2bn aid and still looks vulnerable. I reckon a number of big companies are probably worried and under-estimate their exposure. Call me a Mr Sceptical if you must... Trust no one..

Another .25% on the cards. Will it be enough?

Feeling very bullish about gold and the euro again.

Good trading everyone. :)
Click to expand...

I was short from 12342 cash but I tightened my stop too much and got taken out on the last spike of the day .. grrrrr :rolleyes:
 
shortorlong said:
Thanks Pat, educational stuff.
sure is quiet here today, guess everyone took Oscar's advice about the upcoming holiday. i.e. don't trade this week
Click to expand...

not trading because of Labor day next week?
I think everybody's exhausted from the weekend lol
haven't you noticed we've been up all night to post here :p
 
shortorlong said:
I was short from 12342 cash but I tightened my stop too much and got taken out on the last spike of the day .. grrrrr :rolleyes:
Click to expand...

I think you meant to say 13342 .. anyway although I don't see any particular reason to short there, a reasonable stop would've been placed above the high of the previous day (13390-13400) but considering your entry that would've been quite some risk exposure.
 
shortorlong said:
I was short from 12342 cash but I tightened my stop too much and got taken out on the last spike of the day .. grrrrr :rolleyes:
Click to expand...

Markets an ass. I know I'll probably fall and die on my own sword. How many interest rate cuts and how much liquidity does everyone want?

I would say even if we have another rate cut I'll compensate my losses on the DOW with my short position on USDJPY.

If markets tank then I'm expecting USDJPY to fall further.

Interesting pair to trade at the moment imo.

With not watching the screens all day now I'm preferring the leave SL out in most cases but I'm trading a lot less. I reckon the upside on the DOW is more limited than the downside abyss. :cheesy: :rolleyes: :devilish: :confused:
 
Atilla said:
With not watching the screens all day now I'm preferring the leave SL out in most cases but I'm trading a lot less. I reckon the upside on the DOW is more limited than the downside abyss. :cheesy: :rolleyes: :devilish: :confused:
Click to expand...

For those paying attention to volume, we've had some selling into resistance today...
Tomorrow or later this week could send us :arrowd: again
 
spent most of today lazing about in my my underware, so i only did one trade today on YM at 20:20. Took long from 13370 to 13390 for 20pts :D
 
Atilla said:
Markets an ass. I know I'll probably fall and die on my own sword. How many interest rate cuts and how much liquidity does everyone want?

I would say even if we have another rate cut I'll compensate my losses on the DOW with my short position on USDJPY.

If markets tank then I'm expecting USDJPY to fall further.

Interesting pair to trade at the moment imo.

With not watching the screens all day now I'm preferring the leave SL out in most cases but I'm trading a lot less. I reckon the upside on the DOW is more limited than the downside abyss. :cheesy: :rolleyes: :devilish: :confused:
Click to expand...


didnt know you liked the yen atilla. thought cable was enough.

got 108.90 as a target BTW :cheesy:
 
firewalker99 said:
I think you meant to say 13342 .. anyway although I don't see any particular reason to short there, a reasonable stop would've been placed above the high of the previous day (13390-13400) but considering your entry that would've been quite some risk exposure.
Click to expand...

I shorted there 'cause it was trending down and looking weak ... and I figured it would spike one way or the other into the close, hence the tight stop. I just traded too soon.

I like your idea of looking at the PDH and PDL it certainly would have worked out nicely. Needed patience though :devilish: :devilish: :devilish: and maybe it wouldn't have touched those levels.
 
jacinto said:
didnt know you liked the yen atilla. thought cable was enough.

got 108.90 as a target BTW :cheesy:
Click to expand...

In all honesty I was watching this when it was around 124 thinking this is over done.

I missed the falls thinking it will rise and didn't want multiple exposure with the DOWs turn. But since the turn by the Fed on interest rates and excessive falls it was too much to resist.

Now I see the pair as a win win situation really. I think the carry trades have been supporting the dollar for a long time. With the Chineese selling dollar since last summer I reckon we are going to have another bout due soon. Big switch to the Euro has already started.

The carry trades reversal will be a double blow to the Dollar. If the markets tank as I expect they will it's going to be a big crunch.

I have been following your JPY posts but don't feel familiar about the relationships of the AUDJPY or EURJPY instruments. I always like to understand the fundamentals before leaping into these trades. At least I like to think I do. :eek:

Doing well so far on the short. 114 is my immediate target but hey 108 looks especially cool. Maybe I'll incubate my trade see what hatches out... :)
 
Atilla said:
The carry trades reversal will be a double blow to the Dollar. If the markets tank as I expect they will it's going to be a big crunch.

don't feel familiar about the relationships of the AUDJPY or EURJPY instruments. I always like to understand the fundamentals before leaping into these trades. At least I like to think I do. :eek:

Doing well so far on the short. 114 is my immediate target but hey 108 looks especially cool. Maybe I'll incubate my trade see what hatches out... :)
Click to expand...

together with NZDJPY and GBPJPY carry trade currencies but cheaper :D

108.90 sounds a bit farfecthed, i agree, but hey, thats the measuered move :eek:

im not in, dont have the patience. i have convex utility curves, and a very high intertemporal discount rate if you know what i mean ;) (i.e. im a scalper :cheesy: and jump in and out of setups as i see fit :cheesy: )

j
 
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