On "gaps"

Discussion in 'Trading' started by skyriderfox, Aug 8, 2006.

  1. Anyone have any stats on how often gaps are filled? In my experience, probably 70-80% of the time, but I have no hard data.
  2. bl82


    I suggest you read Bulkowski's "Encyclopedia of Chart Patterns" (pp. 362-373) to get one perspective on the different types of gaps and their various performance characteristics.
  3. Thanks, I do have that book. I think it's a great contribution to technical analysis.

    Bulkowski is *extremely* under-rated. The guy's work is a tome.
  4. Hard data doesn't matter. Since you know that gaps aren't always filled, you have to emphasize holding onto your winners and not let small losses put "gaps" in your trading account when you're wrong. In reality, ALL gaps get filled. Sometimes it takes months and years for it to happen.
  5. Uh, no they don't.
  6. balda



    08-25-02 07:19 PM

    Most traders could recite hundreds of market cliche's "The trend is your friend", "Cut your losses short", and my favorite of all time "Gaps fill". For a long time I made a decent amount of money fading gaps 9 out of 10 days, but on the 10th I would give everything back I made over 9 days. This was obviously very frustrating - but sometimes frustration is a traders best friend because it leads to research that (hopefully) leads to more consistent profits. My losses led me to a very intense study of gaps.
    Here are a few of the raw statistics we have compiled. (This study was done on the Nasdaq, all gaps that have occured since Jan 2, 1989, the data is kept current.
    71% of gaps will fill on the day they occur.
    The average gap is 1.17%
    Smaller gaps fill in more often than larger ones (The exact percents are caclulated as are the odds of any amount of filling in 10% increments for our proprietary money managment systems)
    Gaps that are twice as large as the average gap (2.34) remain open 61% of the time on the day they occur. Gaps that are 3 times larger than the average gap remain open 65% of the time on the day they occur, while gaps that are 3.5% larger than the average gap are left unfilled 89% of the time on the day they occur (only 21% of them are filled on the week they occur too, fwiw).
    Given the above dry data we have developed systems that have us fading small gaps aggressively and average gaps but not as aggressively as well as tading in the direction of large gaps.
    We have a 100% rules based approach (ie system) in place for the managed accounts we do with eLocaltrading, and a discretionary approach is applied in the chatroom. Over the next few week or two I would like to show the Bliss system to the traders on ET. I will post the Bliss generated traders here along with charts and a brief expliation so that hopefully a few people will be able to better understand trading in the first few minutes of the day, a time when most traders get absolutly shredded. I find this to be my best (most consistent) system, and usually I am done by 1045 CT.
    I hope everyone enjoys the thread and any discussion that may come as a result. Please feel free to ask any questions. As long as it does not get into things that might effect the money managment program I will tell you anything you want to know. In general any info about trading the gaps I will be open with, but some of the specifics of what generates the mechanical system, the targets and stops it uses etc I wont be as open with.

  7. stocon


    this the dow ?
  8. on stocks gaps rarely get filled altough in premkt there's often some retracin'; after the first 5min candle at the open stock usually keeps on goin' in the direction of the gap, with some chances it will change direction later...of course that's not always the case.
  9. I love trading gaps. I would venture to say eventually 90 -95 % of gaps get filled. Problem is sometimes you get a breakaway gap and it takes a while to fill. The key is you use good money management so when this does happen, you only take a small hit.
  10. ================
    Sounds about right , depending;
    many QQQQ downtrend gaps from years ago ,still,
    did not FILL. Breakaway downtrend gap;, as Volente said ,
    QQQQ still weaker of the benchmarks

    Some uptrend gaps, especially the larger gaps[end of day close gap to regular market open] may fill [close]more than 70%:cool: Not a prediction.
    #10     Aug 9, 2006