Devising An Opening Gap Strategy for YM

Discussion in 'Strategy Development' started by ewile, May 12, 2005.

  1. ewile


    I've been interested in trading the opening gap on the YM for a while now.
    LAst night I took the plunge and bought a stupid Ebook for $97 dollars.
    It had tons of BS filler and essentially told you to fade the gap (meaning the difference between the 4:00 PM EST close and the (9:30 AM open) and use a profit target of 6 pts and a stop loss of 17 pts.

    Worked this AM, and just eyeballing charts it seems like it would work a pretty high percentege of the time.

    But, there must be a more accurate way of generating a profit target and stop loss. I would think that using the actual volitility of the YM would be the way to go. OR at least one way to go.

    How many points does price move profitibly on average in say the first half hour. Take a percentege of that and that's your profit target.

    How many points on average will price move against you on average in the first half hour. That's your stop loss.

    Close out the trade in a certain amount of time if neither order is hit.

    Or is 6/17 good enough to make a little spare change over time?

    Direction, advice, suggestions from anyone trading this sort of gap fading method would be appreciated.
  2. What is the minimum gap size for the setup? What is the actual entry trigger (breakout of first 10 min range, entry on breach of yesterday's close, etc...)?

    It seems to me that the stop/target should be determined on the specifics of the entry. I would think an OR breakout entry on a gap of X points would have a lower risk and higher reward than other ideas.

    If you have Tradestation, you can do research on these types of ideas by writing a strategy that simply outputs data. I did a similar study on the opening range over 10 markets in this manner and it worked well.
  3. LBR says that according to her research any time the ES gaps more than 4 pts. there is an 85% chance that price will retrace back into the gap area sometime during the day. Always thought this was a fascinating statistic but could not figure out how to use it. Maybe you can. I have stopped trading the open preferring to wait for trades that are a bit more predictable.
  4. ewile


    Took an easy 6 pts fading the open on YM again this AM.
    For the past day I've searched the net extensively regarding gap fading methods.

    I bought an article from Active Trader magazine. From these efforts I've put together the following ideas:

    If gap is 6 points or greater, and if all 3 indices are trading in the same direction pre-market, fade the gap at the open with a six point profit target. If profit target is not hit close trade at 9:55 - that's the stop loss. This idea was taken from the article I bought. The consensus seems to be that when these trades are effective, they happen FAST. As 10:00 approaches things get very risky.

    I should say that these ideas are dictated my my personal situation. I am not a pro trader I have a job and can't sit at my computer for more than a few minutes. There can be no discretion. I need to place orders and move on with my day. I have no lofty goals other than to make a little pocket change using a low risk trade.

    If anyone...or a few of you are interested in splitting the cost of a month a Tradestation to test this stuff contact me. If anyone would like to do a little backtesting just to be nice, contact me :)
  5. travis


    Ok, I coded it as best as I could, in easylanguage on tradestation, and tested on half a year of 5-minute data.

    First of all, I have to say that shorts are much better than longs, so no point in trying the longs, whether in an uptrend or in a downtrend.

    The only problem is a big stoploss of 40 ticks, that is 200 dollars.

    The system is simple and good. It goes short (forget the long trades as I said) if yesterday's close was lower than today's open.

    Then it stays short until:

    1. it either goes back down to yesterday's close, or until

    2. it's 17.15, at which point we can consider useless the hope of filling the gap.

    3. it hits a painful stoploss of 40 ticks.

    There are no other inputs to be optimised. Just these last two I mentioned - the time and the stoploss.

    I think the system is valid, but I don't know if I would trade it because it's a high stoploss. Of course, it could be coded better to find out that you don't need such a big stoploss.

    It makes money every month and trades about 10 days per month, since it doesn't go long, but there's always a gap. I would trade it if I had 10 different systems among which to diversify. This is certainly a good one. Personally I think I can find better setups, but then again, as I said in my other thread, I don't know what exactly I am doing, and I certainly couldn't code what I am doing in 3 lines like for this system, so this is the proof that the system is valid.

    If time=1530 and c > c[1] Then Begin
    sell this Bar at c;

    exitshort at value3 limit;
    exitshort value2+40 stop;
    if time>1710 then exitshort;
  6. hey thanks. what timezone are you in? are you talking about shorting the open at 9:30 am EST and covering at 11:10 am EST at the latest?

    it looks like you're using 2000i, so it may be stamping the bars diff than 8.0, for instance when you say enter close of 1530 bar, is that on a 24 hour chart, etc. basically, what time is it entering, is that market open, or 5 mins into open, or something else entirely
  7. ewile


    Thanks for the effort, but what you coded doesn't seem to be exactly what I'm thinking of.

    Here's a summary of wht I have now (subject to change of course).

    1)If gap is greater than 6 points fade it. ie. sell gap-ups (like today), buy down gaps.

    2)Set a profit target of 6 points.

    3) Exit the trade at 9:55 EST if profit target is not hit. That's the stop-loss.

    Of course I'm interested in the other obvious variation, which is gap closure as the profit target as well. But right now I'm kinda intrigued by the 6 pts a day thing.
  8. travis


    Sorry, I was talking at the close of the first bar, that is to say 5 minutes after the open. Yes, I am using ts 2000i.

    Yes, I am in Europe, 15.30 means 9.30 and 17.10 means 11.10.


    For ewile, yes, I get all your points, but I didn't follow your exact settings only because I couldn't make it profitable with those, at least not significantly profitable. I know what you are talking about and what you are going through. A system, even a very simple one, seems infallible and then once you test it, you find out it actually loses money.

    Like the reversal at 16.00. I thought we always had one. And yet if you test it, you find out you don't have a reversal each time at 16.00. Yes, you do have a reversal between 15.50 and 16.05, for sure. But that makes a big difference. If you go in expecting a reversal each time at 16.00 you will end up losing money. But if you can use the time, support/resistances and a lot of other things that I can't code together, then you will probably get the right time between 15.50 and 16.05 at which there will be a significant reversal (I mean around 10 am for those in the States).
  9. travis


    Inputs: tickloss(14), endtime(1550), z(80);

    {*** entries ***}
    If time=1530 and c > c[1] and c < average(c, z) Then Begin
    sell this Bar at c;

    {*** exits ***}
    exitshort at value3 limit;
    exitshort value2+tickloss stop;
    if time>endtime then exitshort;


    Performance Summary: All Trades

    Total Net Profit $781,00
    Open position P/L $0,00
    Gross Profit $933,00
    Gross Loss ($152,00)

    Total # of trades 21
    Percent profitable 85,71%
    Number winning trades 18
    Number losing trades 3

    Largest winning trade $116,00
    Largest losing trade ($74,00)
    Average winning trade $51,83
    Average losing trade ($50,67)
    Ratio avg win/avg loss 1,02
    Avg trade (win & loss) $37,19

    Max consec. Winners 7
    Max consec. losers 1
    Avg # bars in winners 3
    Avg # bars in losers 3

    Max intraday drawdown ($124,00)
    Profit Factor 6,14
    Account size required $124,00
    Return on account 629,84%
  10. ewile


    Is this the short only method you were describing? (I don't know easylanguage) Pretty good.

    What would happen to my strategy if instead of using a 6 pt profit target you made gap closure the profit target and kept everything else the same ie. exit at 9:55 if profit target is not hit
    #10     May 14, 2005