The Daily Gap Guides will help you do three things better:
1) avoid more losing and low profit expectancy gap trades;
2) capture more winning and high profit expectancy gap trades, and
3) increase the size of your average gap trade profits by identifying those setups with the greatest historical probability of trading through the gap fill area to an extended target.
The Gap Guide probabilities are updated daily and are based upon our unique Gap ZoneSM approach and our proprietary 'Market Mood', Pattern, and Seasonality filters. Using these 3 filters, you can analyze the setup based upon 3 different approaches, increasing your accuracy and confidence. Note: Your results will be best if you use this data in conjunction with the Price Guides and other techniques for entering and exiting your gap trades.
Here's a simple example:
Let's say that the ES is poised to open (at 08:30 am CT) "up" in the area below yesterday's high price and above the prior day's closing price (at 15:15 pm CT). This area is the U-HC zone (i.e. prior day was Up and gap opens below the High and above the Close). Per the table below, this zone has a compelling historical Win Rate (78 - 89%) and Profit Factor (2.14 - 4.08) when using a stop equal to 30% of the 5 day ATR (minimum of 5 pts), and targeting gap fill.
You can also see that the historical win rates and Profit Factors are less when holding the trade for the "extended target" - a price BELOW the prior close that equals 15% of the ATR (1.5 points). So, the historical odds suggest that fading an opening gap in the U-HC zone and targeting the prior close offers a compelling blend of Win Rate and Profit Factor and should be seriously considered.
Alternatively, had prices opened in the U-OL or U-L zones, the lower Win Rates and Profit Factors suggest that the chance of being stopped using a stop equal to 30% of the ATR are fairly high (since the win rates are so low: 20-63%). Fading gaps in these areas would be risky.
To understand the definitions and assumptions behind this table, check out the Explanatory Notes.
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