Data for Monday looks good on very small downgaps and decent sized up gaps. I will take the trade with 3 contracts (unfilled gap on Friday so I will increase size, however it is Monday so I won't go with 4). Anecdotally, the most powerful function of the data is predicting gaps that will not fill, imho. If the mkt wants to get work down to the downside tomorrow, the data is highly supportive in the case that by the open we are trading down below the low of Friday. Also, the data for closing and large upgap is heavily supportive, which would bring the momentum downward after the open. Either way, the data is setting up short.
Took it today. 5.75 pt stop, 3 contracts. winner, winner. chicken dinner. Now if the Euro will just play along (I am primarily a Euro swing trader and using the ES gap fill to "finance" my Euro trading and provide my daily bread in between the daily swings on the Euro)
No trade for me today. Data didn't support it well. Gap filled (both 4:15 settle and NYSE close which was quite a bit higher). Shorting that first GLOBEX pop @ 1085 was a no brainer. Setups down to 1053.25 are fairly solid. If we trade between there and the 4:15 CME settle price I will more thank likely take a trade to gap fill with 2 contracts.
No trade Fri-Tuesday. Took trade this Wed. morning, data was supportive. winner. 2 more days left in the month and I am even with this strategy. As was mentioned the price action was terrible overnight, consistently, with gaps closing 1-2 hours before the NYSE open. So far, I find this data is best at predicting what gaps to STAY out of. Not bad though for a draw-down, a bunch of small winners but a few large losers was enough. I expect this"summer fun" to continue through August. It's the summer, shouldn't we all be in the hamptons %-)
That pretty much sucks or coinflip. I think the pure 2nd gap plays would have given you 15-20 pts with 3-4 entries this month.
Are you an "everyday" gap trader? By that I mean you consistently take the gaps everyday the setup is there for you. If so, I would like to hear what your stop methodology is on those 2nd gaps. Mine is 30% of the past 5 days ATR. For tomorrow it will be 5 points (5 day ATR is 16).
2nd gaps are rather rare, so they don't present themselves everyday. But this month we had actually quite a few of them, I think at least 4-5. Well, the stop is kind of a difficult issue, because let's say the 2nd gap up is 5 pts, so you go short, but the rule doesn't say that it can not gap up even more, let's say 12 pts before falling back and closing the gap. So the point is that averaging down is allowed and sometimes needed with the 2nd gap strategy. The stop has to be set keeping that in mind.
No more trades this week. Data wasn't supportive. Too bad, monsters gaps both Thursday & Friday. The data on Thurs. was one percentage point away from my bare minimum, so it was very close to being supportive for me. Have noticed the following ES pattern of price action over the summer doldroms and during the time from Turkey Day to Christmas. 1) frequent occurrences of wildly large gaps of 10-20 pts. Often in late day action these are filled, miraculously. The mkt seems to respond to almost every fib line, moving avg and "overly simple" setups work. Traders 101. My ATR based stop will NOT survive this, like most systems it works best in a trend. I think traders realize that big participants are not particularly concerned with price. 2) this is followed by wild range bound price swings during the day. i.e. a few hours of morning work wiped out and reversed. Only to be reversed immediately overnight, back to par. 3) These same large gaps are then "whacked" to balance overnight 1-2 hours before the NYSE open once traders catch on. 4) Some gaps open 1-2 pts (free money usually) and never look back and stay unfilled (this is a normal occurrence the rest of the year also, but seems more prevalent during this phase.) I have often wondered about the psychology of this and what I come up with is that the gap just wasn't profitable enough given a rangebound mkt so mine as well let it get bigger before trying to trade it. My overall theory is position unwinding. I.E. participants who spent the entire year building positions are now getting lighter and sitting on the sidelines while the monkeys screw each other and build up enough stop to move the mkt come fall. A lot of these gaps are created by earnings and/or news reports and big money uses them as triggers to unload lots, BUT keep it in the range. The reason I think this is because 1) not worried about price when they are getting out, hence big swings to extremes and 2) the late day rallies are suggestive of that being used as an "opportunity" to unload some more contracts/shares at the extreme of the days range. The mkt then moves into these phases. 4) market gets quiet in the afternoon, and sometimes overnight. With less frequent big gaps opening . 5) market has dead quiet Fridays (past 10am EST) and the rest of the week is pretty dead after lunch. This is the point when we are all out of our mind bored and just waiting for the summer to be over and the mkt to start going on all gears again OR for some signs of life with phases 1-3 coming back in vogue. Position unwinds can be tough times to trade, however I don't think they are indicative of a reversal. Just the same as profit taking doesn't mean you think the trend is over, it just means you want to book some profit and free up some cash for the next trade.