Closing the Gap

[Spandy]

Hi folks, apologies if I've missed any etequette. I'm new in here, and fairly new to trading.

I'm after some advice

I was going well. I managed to increase the trading capital by about 50% in 6 weeks, by using a Trading the Gap strategy (plus 1 or 2 major economic announcements such as an interest rate or election result). Basically, the strategy went, that I'd wait for the opening bell on the NYSE and then simply trade, on a 5 minute chart in the direction to close the gap, provided that the gap was within 50 points. I started with a small amount and gradually pushed until I was closing the gap with as much as 35 contracts per pip sometimes. I looked to be in and out of the trade within 10 minutes.

It seemed to work most of the time and when the trade went South, I'd pull the plug quickly.

Then, it just seemed to stop working, and in the last 10 weeks, Ive been on a continuous loosing streak and have been dying with death by 1,000 cuts. I'm still 22% up on my initial deposit.

I decided to backtest the strategy over the last 2 months on the Dow (Dec and Jan) and the gap closed very few times and where it did close, a 1:1 stop would have been taken out first. I've stopped with that strategy for now, since it doesn't seem to be working but would love someone who has experience of trading a Gap strategy to give me some suggestions of what might have changed.

Like I said,I'm fairly inexperienced.

[Caseynotes]

12 minutes ago, Spandy said:

Hi folks, apologies if I've missed any etequette. I'm new in here, and fairly new to trading.

I'm after some advice

hello and welcome to the forum, we do have some gapper traders but they seem to have gone quiet the last couple of weeks, wonder if they have run into the same wall.

[phillo]

15 minutes ago, Caseynotes said:

hello and welcome to the forum, we do have some gapper traders but they seem to have gone quiet the last couple of weeks, wonder if they have run into the same wall.

I'm still here

[phillo]

https://www.youtube.com/watch?v=tcoex_Rsq04

[phillo]

https://www.youtube.com/watch?v=hvqGMfklYhM

[phillo]

https://www.youtube.com/watch?v=kDE29jTt2Lo

[Spandy]

Thanks guys, those are all really useful directions.

So there's more than 1 type of gap? Who knew? Meh. Back to the books and YouTube for me..... I'll get there.

[dmedin]

I don't understand the rationale of this system, myself.  There's no inherent reason why a gap should take 10 minutes to be filled.  Sometimes gaps take weeks or months to get filled.  Doesn't make sense to me.

If you're 'in and out' of a trade in the space of ten minutes you're just asking for trouble, AFAIC.

Edited February 3, 2020 by dmedin

[Caseynotes]

Gap analysis;

https://school.stockcharts.com/doku.php?id=chart_analysis:gaps_and_gap_analysis

[Guest Macntosh]

I would also look at the stochastic and RSI for the relevant time periods.  I gap fill but trade when stochastic below 20% and RSI is below 30. I trade on 5 minute chart but am not greedy and trade on the basis that the gap will not be filled, so set my limit order some distance from the top. I also follow trends on 2 hour 4 hour and daily charts. I get a high percentage being profitable but previously, when I was too greedy It was much lower. I tend to trade at 0.5% profit per day and once I have closed the trade, I finish for the day, as previously, I used to over trade.