Gap Trading

[yiehom]

Hi Yiehom, my apologies I never saw the second paragraph of your post! Yes we can discuss that. I am now signed into Skype - if you want to discuss the gaps that are setting up tonight on the fx market.

G

Hi George!
A pity I got your message only this morning. I was online all the evening, but only traded after midnight, sold g/a and bought a/u, as the Aussie looks quite bullish to me recently. At BE now on both. Will see how far they can go, as I believe I am with the main trend. So will try to "seat tight" till tomorrow with those stops .
I was short a/j last Friday after nfp release and got stopped last night at be. I should have closed the trade after the gap for a little profit.
Next week I will make sure to check your presence on Skype.
Did you do any thing?

 

[yiehom]

My apologies.

ETH = Electronic Trading Hours i.e. overnight and outside of regular trading pit session hours

RTH = Regular Trading Hours i.e. regular pit trading session hours 9:30AM EST to 4:15PM EST

Thanks Junior,
When possible please illustrate one trade here.

 

[options-george]

bump.

am in a gap trade tonight. first one in three weeks.

went long eurusd @ 3847. Again this is unconventional to my normal style of fading novice gaps, since in this situation i am fading a professional gap. this is for two reasons:
I had already considered a setup on eurusd on friday and this down-gap plays into my target zone for that setup
i am currently short eurgbp on a swing trade - so this trade will partially hedge that trade.

also wanted to short usdchf but the spread was too wide (15-20 pips) at the time that I wanted to short it - and it has now effectively already closed the gap.

Yiehom - u looking at the gaps tonight? looked on skype but didn't see you logged in. hope all's well. still havn't had the chance to look at the commodity gaps.

 

[yiehom]

bump.

am in a gap trade tonight. first one in three weeks.

went long eurusd @ 3847. Again this is unconventional to my normal style of fading novice gaps, since in this situation i am fading a professional gap. this is for two reasons:
I had already considered a setup on eurusd on friday and this down-gap plays into my target zone for that setup
i am currently short eurgbp on a swing trade - so this trade will partially hedge that trade.

also wanted to short usdchf but the spread was too wide (15-20 pips) at the time that I wanted to short it - and it has now effectively already closed the gap.

Yiehom - u looking at the gaps tonight? looked on skype but didn't see you logged in. hope all's well. still haven't had the chance to look at the commodity gaps.

Hi George!

Last week I missed you but yesterday I didn't check, as I started late.

Huge gaps yesterday on my selected pairs: U/C (short); A/J; C/J and A/U (long). I finally took all 4 . Now at BE for 3. Still 10 pips in danger in the Cad Jpy. But it was so tricky I had to put stop orders around midnight gmt then try to sleep. Now I hope 1 or 2 will work at least till NY open.

Your E/U trade looks profitable, if you hadn't set your stop too close. With all the politics around euro lately, I decided to let it alone all this week.

 

[yiehom]

When I started this thread, I said that I was trading the sunday night gaps on the fx market and that i was looking to apply the gap trading concepts to other markets.

Well, it's been some months now. I am still trading the Sunday night gaps however the results in recent months have been less stellar, mainly because a lot of the times the gaps didn't close as I had hoped they would for my setups. Most of my trades have a 'fade the gap' bias.

The 2011 YTD stats for my trading on this strategy are as follows:
44 trades - 19W, 12BE, 13L - net gain 9.17% - typically I risk around 1% per trade - so this effectively is 9.2R.

I also looked at applying the gap trading to the equity markets. My approach here ended up being a subscription to a monthly-billed data service and live online trading room where gaps in the US equity indices are traded on the basis of 10 years of historical gap data. This has been working out well so far, and as I had planned, allows for a greater number of trades as there are potentially setups on a daily, rather than a weekly, basis.
The stats for that are 8-2-3 and a net gain of 3.34% - the winners tend to be smaller than the losers on this one, but the win rate is higher - this is two months' worth of live trading - so very small sample size.

The data service also looks at first hour range trades - this is different than gaps but also seems to work well. So I might well try and apply that first hour methodology to the sunday night fx market.

If you are out there trading gaps - then get in contact - it would be great to discuss and swap ideas!

Let me guess. Isn't that "the gap guy"s trading room?

 

[options-george]

Let me guess. Isn't that "the gap guy"s trading room?

Yes it is. I am happy with the service thus far. Did you have some experience with this one?

Hi George!

Last week I missed you but yesterday I didn't check, as I started late.

Huge gaps yesterday on my selected pairs: U/C (short); A/J; C/J and A/U (long). I finally took all 4 . Now at BE for 3. Still 10 pips in danger in the Cad Jpy. But it was so tricky I had to put stop orders around midnight gmt then try to sleep. Now I hope 1 or 2 will work at least till NY open.

Your E/U trade looks profitable, if you hadn't set your stop too close. With all the politics around euro lately, I decided to let it alone all this week.

Yes it worked out well. I was watching the trade until 0.30am GMT (whilst watching a DVD). Initially my stop was at 3793, I shifted the stop to 3718 when I went to sleep. At that point the pair had traded between 3830 and 3870.

Nice to get into the office this morning and see it hit my target. I had actually also set up a swing trade on the same pair with stop at 3636 and target at 3947 and that got hit as well this morning (while I was sleeping) - so it was a profitable sleep. I had adjusted the position size risk to ensure that the two setups on the same pair still complied with my risk management parameters.

 

[yiehom]

Yes it is. I am happy with the service thus far. Did you have some experience with this one?



Yes it worked out well. I was watching the trade until 0.30am GMT (whilst watching a DVD). Initially my stop was at 3793, I shifted the stop to 3718 when I went to sleep. At that point the pair had traded between 3830 and 3870.

Nice to get into the office this morning and see it hit my target. I had actually also set up a swing trade on the same pair with stop at 3636 and target at 3947 and that got hit as well this morning (while I was sleeping) - so it was a profitable sleep. I had adjusted the position size risk to ensure that the two setups on the same pair still complied with my risk management parameters.

Well done for a week start, George! I am still to take the habit of trading on targets. Till now I prefer to trail my stop till it gets hit.

I have read "Understanding the gaps", the gap guy's book, and most of his freebies, as I am subscribed to his site. He seems to know his subject, mainly the SnP index. He doesn't seem to treat the week end gaps differently, if I am not mistaken. But the success ratios he computed for SnP gaps look very similar to those of FX. His idea of gap "zones" is quite original.

 

[options-george]

Well done for a week start, George! I am still to take the habit of trading on targets. Till now I prefer to trail my stop till it gets hit.

This is actually something I have struggled a bit with recently. Instead of keeping the limit orders I place when entering the trade, I try to 'squeeze' a bit more out of each trade by trying to get a bigger target in the end, just in case price moves through my initial target and then just keeps going.

I am sure that the correct thing to do is to stick with the initial target. Well, I guess it depends on the trader's personality.

 

[yiehom]

Anyone profited from this week end gap on the SnP 500? Looks like it was not easy to play at the time, it took some time to decide which way to go.
Btw this is an example of why I am reluctant to set a target: it closed the gap and kept moving beyond.

 

[options-george]

Anyone profited from this week end gap on the SnP 500? Looks like it was not easy to play at the time, it took some time to decide which way to go.
Btw this is an example of why I am reluctant to set a target: it closed the gap and kept moving beyond.

Hey Yiehom! I only look at the S&P gap on a daily basis, generally at the time of the market open. not on sunday nights - but maybe I should start doing that.

I totally get your point regarding target setting. It's a real trade-off. Each to their own.

I should be on skype again tomorrow (Sunday) night if you are around.

George

 

[yiehom]

Se you there, George.

Now that the Euro is momentarily saved, it is high on my radar for this week end, besides the AUD.

Yiehom

Hey Yiehom! I only look at the S&P gap on a daily basis, generally at the time of the market open. not on sunday nights - but maybe I should start doing that.

I totally get your point regarding target setting. It's a real trade-off. Each to their own.

I should be on skype again tomorrow (Sunday) night if you are around.

George

 

[Adamus]

Hi,

just thought you'd be interested in some stuff I did back in spring which I journalled here

Like you, I found it problematic dealing with the spread when the markets first open, so I would wait until later and enter then on a pull-back.

Interesting discussion.

 

[yiehom]

Hi Adam,
Agree with the idea of entering on limit beyond the gap-opening price, as I believe the same result is obtained by waiting some time before acting. But talking of FX, do you think 5 pips make any difference ?
Yiehom

Hi,

just thought you'd be interested in some stuff I did back in spring which I journalled here

Like you, I found it problematic dealing with the spread when the markets first open, so I would wait until later and enter then on a pull-back.

Interesting discussion.

 

[Adamus]

Are you talking about 5 pips bid/ask spread? That would make it difficult, but that is often all you can get right after the open.

I didn't implement my strategy, but I would look at price action to determine what to do if I tried it again. If it was looking choppy, I wouldn't trade it or at least I wouldn't trail a stop if I did. If the market carried on away from the gap but then turned and trended nicely back, then I'd jump in and trail a stop.

If it doesn't close the gap on the first day and it's a big gap, you could switch up to hourly bars or more.

 

[yiehom]

I refer to what you wrote :

"Enter 5 points on limit away from the Sunday Open"

Are you talking about 5 pips bid/ask spread? That would make it difficult, but that is often all you can get right after the open.

I didn't implement my strategy, but I would look at price action to determine what to do if I tried it again. If it was looking choppy, I wouldn't trade it or at least I wouldn't trail a stop if I did. If the market carried on away from the gap but then turned and trended nicely back, then I'd jump in and trail a stop.

If it doesn't close the gap on the first day and it's a big gap, you could switch up to hourly bars or more.

 

[Adamus]

Oh I see. Actually that 5 points was not so significant. Looking into it more proved that it was worth waiting for considerably more points before entering, and on a stop too, to wait again after that to prevent just jumping in on a trend away from the gap.

 

[yiehom]

Yet another costly lesson learned this week: BEWARE THE LARGEST GAPS! I shorted a/u and a/j hoping they would make at least part of their gaps, but they just went thru my stops and flew above. grrr..

 

[Adamus]

Bad luck. I found the Aussie dollar to be the best performer when it came to filling gaps. Obviously not all the time though. How big was your stop? Did you enter on market open or did you wait?

 

[yiehom]

Bad luck. I found the Aussie dollar to be the best performer when it came to filling gaps. Obviously not all the time though. How big was your stop? Did you enter on market open or did you wait?

Actually, this sinner must confess 3 wrongdoings in that evening:
TIMING: I could not wait any longer after my broker started, so I set stop orders to sell and contingent stop losses around 40 pips away and went to sleep.

LOCATION: this relates to the size of the gap, which was unusually large and would have called special treatment.

POSITION SIZE: last and worst: I took double my usual size on the 2 trades, as I had been successful for the previous 2 or 3 weekends, ready for a killing .

 

[Adamus]

Uh-huh. Everybody makes those mistakes. That's why we all lose!

Plus you didn't mention one more mistake - AUD/USD and AUD/JPY are strongly correlated, you should have reduced your position size even more.

So you're not coding this? You're doing it manually. What platform do you use?