Pekelo's 2nd gap rule

pekelo,
an absolute fill is not really necessary. In terms of the ES, I am content with a price print that represents within .75 pts of an absolute fill. This is the product of being frustrated by waiting for an absolute fill only to have aggressive buyers come in and bid prices up despite lack of technically "printing at previous day's 4pm close"
For a gap up, I generlly use the high of the last 5 minute bar of the previous day to satisfy a gap fill in ES.

 

70% is a very good statistic, but what/when are the entry signals, what are the stops?

 

Quantifying Pekelo's 2nd consecutive gap

THIS POST ADRESSES GAPS UP

Price DATA reviewed: ES past 10 years (until 1st quarter of 1998)

Here's what I scanned for :
2 consecutive gap openings. where 1st gap was never filled and next day sees gap open in same direction

This was simply a comparison of the open of the regular futures session (9:30ET)to the close (4:00pm) of the previous session.

Gap on 2nd day had to be at least 1.25pts(>1.00)

Here's the code I used for the Gaps UP

---
[LegacyColorValue = true];

{File gap001up (strategy)}

vars:gapfill(0),gapone(0),gaptwo(0);

gaptwo=O-c[1];

if currentbar>2 then begin

if O-c[1]>1 and o[1] > c[2] and l[1]>c[2] then value1=1;
gapone= O[1]-c[2];
end;

if value1=1 then begin
If l<=c[1]+.75 then gapfill=1 else gapfill=0;
value1=0;
value2=1;
end;

If value2=1 then begin


Print(file("c:\101\gap001up.txt"), date:0:0,",",open:0:2,",",c[1]:0:2,","
,gapone:0:2,",",gaptwo:0:2,",",gapfill:0:0);

value1=0;
value2=0;
end;

---

RAW OVERVIEW of 2 consecutive Gaps UP (study did not include any data from Q3 2007, data reviewed was December 1997 through June 2007)

Since December of 1997, there have been 115 occassions when there has been a second gap up day after an unfilled gap up day. of those 115 events, 78 filled the gap of the 2nd day.

78/115 = 68% of the time 2nd consecutive gap fills (fills the gap created by the 2nd day's open).

If you added the gaps for both days together and divided by the close of the previous day (day of Gap 1), and that aggregate was over 1%, this occurred 47 times and gap of 2nd day was filled 25 times. 25/47 is 53% of the time. that's a coin-toss.

I think it's important to remember that it is much easier for the psychology of the marketplace to be bullish. When prices start moving higher, people are more willing to blindly buy (greed). AND when prices move decidedly higher, a herd mentality and short-covering adds to the fuel. The fact that aggregate gap > 1% (two days gap movement greater than 1% of c[1]) sees a fill of the 2nd day gap only 53% of the time is evidence of greed factor generated by higher prices.

As with the Gap Down study, I filtered Gaps Up for occasions when the aggregate pts gained in the 2 gap up openings was greater than 2% of the previous day's close and that occurred 9 times, with only 4 of those 2nd day gaps filled. 4/9 is 44% of the time. A coin-toss. This is additional evidence of the "herd" mentality that can overtake the markets. The bigger the gap gains, the less likely to fill 2nd day gap (very small difference, but you understand).

If bullish exuberance as measured in terms of aggregate gap gains over 1% and 2% is reflective of a bullish mentality that generates greed buying, what about the opposite?

I filtered the gaps by whether the 2nd day's gap was smaller than the 1st day's gap (measuring just raw points). In the 10years of price data, a gap up opening on the 2nd day that was smaller than the 1st day's gap up opening occurred 71 times, (smaller 2nd day gap meaning less enthusiasm?). Of those 71 events, 55 of them filled the 2nd day gap.

55 out of 71 is 77.5% of the time.

You can have fun with numbers testing all sorts of measures. I have included the columns I was using to filter data in columns I,J and K of the SUMgapUP002.xls file if you find something of interest share it. I did.

Overall, as far as I'm concerned, odds are roughly 7 in 10 that the gap fills (up or down) this however, does not offer any guidance what so ever as to what intraday prices do after the 2nd day's gap fills.


excel spreadsheet in next post.

 

here's the gap up spreadsheet.

 

tatsimon,
7 in 10 are good odds, pekelo was expecting gap fill yesterday before regular trading began. I Think that's the way to play it.

Use 24hour chart with 5 or 10 minute bars, watch for loss of momentum, (negative divergence in MACD) use overnight H or swing high in the 7 to 9:00am period as stop.

Record previous day's gap (in points) and pay attention to pre-opening prices, as potential gap for current day weakens (current price minus close at 4:00pm from previous day) as it weakens and starts to become less than previous day's gap in points), odds increase that prices will move to within .75 (ES) of the previous day's 4:00pm close.

 

I know and I agree. Yesterday the ES got only 2.5 points close to filling the gap, but once one of the 3 indeces fills, it can be considered as an exit...

Can you retest with bigger gaps only? Like 3 ES points instead of 1.5? I assume you would get a higher fill rate.... Bigger the vacuum, more nature abhores it...

 

I don't understand what you're asking

 

The spreadsheets contain the gaps in columns D and E, help yourself.
Download the spreadsheet, rename it, save it in your computer, pull it up and have a blast.

 

A nice present it is. Thanks! And thanks to Vertigo3 for your work as well.

 

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Vert3 says ''i don't understand''

Pekelow assumes bigger the gap[% measured ,my read], the less likely it holds;
generally true. But never did short much ,up gaps in oil company takeovers, good way to get slaughtered.