GLOSSARY
ATR: Average True Range. ATR is calculated by measuring the distance between the extreme high and low of a day, including the prior closing price (if it is beyond the day's trading range). By incorporating the prior day close, a more accurate measurement of a market's daily movement can be determined since the overnight gaps are included. ATR is a useful calculation for measuring the volatility of a market.
BLUD Gap: "Below Low of Up Day." This is a U-6 on the Gap Map and as the name implies, it is generally a difficult zone in which to play gaps since it is the only zone without a strong natural bias to fill. In fact, my only set-up in this zone is a "go-with" (this is a discretionary set-up) and not a fade.
Buffalo Trade: This is a trade where price action almost hits the target, then reverses and becomes a loser. Or, this is a trade that goes against me and stops me out, just before turning into a winner. The key to remember is that any trade with the word "Buffalo" in its description, is always a frustrating loser. (My apologies to Buffalo fans!)
Cowboy Gap: This is a D-3 short play on the Gap Map. I call it this because it often bucks up and down like a wild bronco and it pays to hold on and ride it like a cowboy. If successful, it will often sell off through the prior day close and deliver a nice profit.
Discretionary Trade: This is a trade in which "Otis" my system does not generate a signal at the open, but that I have identified through my research as being worthy of consideration for a quarter or half size trade. Per my plan, I am allowed to use discretion regarding position size and whether to take the trade or not.
Fade: This term simply means to enter a trade in the opposite direction of the gap move. For example, to fade an "up" gap, I would "sell" a.k.a "go short." To fade a "down" gap, I would "buy" a.k.a. "go long."
Gap Guy "Good Call:" This is a gap that I did not play at the open and that would have been a loser for me per my parameters for that zone (i..e did not hit my target or would have stopped me first) had I played it.
Gap Guy Loser: This is a gap that I traded at the open for a loss.
Gap Guy Missed: This is a gap that I did not play at the open, but would have been a winner for me per my parameters for that zone (i.e hit my target without first hitting my stop for that zone). By definition, that means that I do not necessarily consider a gap that filled (that I did not trade), as "missed" since many small gaps have negative / marginal profit expectancy (see definition below) and should not be traded. Members can see the supporting research for this "fact" in the Gap Fact Database.
Gap Guy Winner: This is a gap that I successfully traded at the open for a profit. Note: this does not include gaps that I successfully played and called out in the Live Trading Room after the open.
Gap Guy "No Call:" This is a gap that was nominal in size at my decision time / open; or one in which I was out of the office and could not evaluate. I generally post these charts in the blog when possible, but do not index them.
Gap-n-Go: This is a trade where you "go with" the gap by trading at the open in the direction of the gap (as opposed to fading it.) On occasion, I will do this when the profit expectancy is high.
Gapper: A unique individual that has evolved beyond his/her trading peers by recognizing the superior return on time, effort and capital of the "gap fade." This elite trader can be recognized by his/her enviable lifestyle and finances.
Granny Gap: This is a gap into the D-2 zone, so called in memory of my late great-grandmother, Pearl Shepard. Our family was visiting her for the last time at the hospital while she lay, literally, on her death bed. In a moment of total silence and peace, her breathing slowed and she drifted away. We thought we had lost her. And then, with a burst of energy, her eyes flashed open and she firmly proclaimed, "I ain't dead yet!" (She died peacefully later that night, but I still chuckle when I think of those last defiant words). So, when I get signals in this zone (below the close and above the low of a prior down day), I call them "Granny Gaps" because the market might not be "dead yet!"
Heat: This is a slang term for "maximum adverse excursion" which describes how far (points) a trade moved away from my desired direction before becoming a winner. This is a good statistic to track for all trades.
Heat Gap: This is a U-3 on the Gap Map and is prone to taking "some heat" (running against you) if faded at the open. I use a bigger stop for gaps in this zone.
Otis: "Otis" is the name of my gap trading system. I named it after my late, great-grandfather Otis Shepard (the husband of Pearl who is referenced under "Granny Gap" above). Papa Shepard was a hard working, unassuming, rock-steady entrepreneur who was loved by all that knew him. When he died, he left me his wedding band which I still wear everyday (inscribed with his and Pearl's initials and their wedding date: 12-20-1917.) and his blue blazer that fits me perfectly and that I often wear to church. Pretty cool.
Profit Expectancy / Expected Value (EV): In lay terms, it simply how much profit per trade one would expect to average over time (based upon historical averages) for a given set-up. The formula: (average profit per winner * probability of winning) - (average loss per loser * probability of losing). This is also known as EV or "expected value." Note: this number is far more important than just the probability of profits. It may feel good to have a high winning percentage, but it may not be profitable over the long term.
Profit Factor (PF): This is another way to measure the attractiveness of a trade set-up. It is the historical net profits of a strategy (generated by the winning trades) divided by the historical net losses of the losers. A profit factor greater than 1.0 would be a money making strategy and less than 1.0 would be a losing strategy. The bigger the profit factor, the greater its long term profitability and attractiveness.