Daily Wrap: (No Video) Small down gaps after a 100 day high close and unfilled up gap calendar day of a month
Learn how to use the Gap Guides via this short video. View the gap zone map here. Learn about the First Hour Guides and view a video here.
Join Scott every Thursday at 9:00 am ET for live pre-market analysis of the opening gap: register here.
Read the newest "Member Spotlight: Andy from Illinois" - a long time member of MTG who shares how he has generated significant profits over the past 12 months using the Gap Guides.
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Pre-market comments: (posted for members at ~9:20 ET daily)
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Greeting Gappers! As of 9:10 am ET, the indices are showing small gaps down near Tuesday's lows in mixed zones.
Risk Factors
- Gap Guides: most indices are showing neutral to weak win rates and profit factors for fading DOWN gaps today in the D-L and U-L zones.
- Gap Size: Small gaps (<15% of the 5 day ATR) have higher win rates than the averages shown in the Gap Guides (which include all size gaps up to 1x the 5 day ATR), but increase the risk and impact of mixed opening zones/directions, execution errors, slippage and commissions.
- Unique Day/ Patterns (with MTG stop parameters):
- None noted with any significant sample sizes
- Closing Variance: 1 pt today. The ES was trading at 1287.25 when the SPY closed at 4pm ET yesterday. This is a consideration and risk factor for target placement.
Supportive Factors
- Gap Guides: most indices are showing neutral to positive win rates and profit factors for fadign UP gaps today or small down gaps in the D-CL zone.
- Unique Day/ Patterns (with MTG stop parameters):
- Per last night wrap, fading DOWN gaps after a 100 day high close and unfilled up gap:
- DOWN gaps: 15/20 wins (75%) and 1.4 PF
- UP gaps: 11/13 wins (85%) and 2.9 PF
- Fading gaps after a 20 day high close and unfilled up gap:
- DOWN gaps: 49/70 wins (70%) and 1.4 PF
- UP gaps: 28/46 wins (83%) and 2.9 PF
- Fading DOWN gaps in the D-L zone after 20 day high close: 7/10 wins and 1.9 PF
Bottom Line:
Another really tempting gap fill play, not because of the guides, but because of the other unique patterns in play today - notably yesterday's unfilled up gap. I will stand aside at the open, but will likely look for a long opportunity on a discretionary play after the bell.
TRADE AT OWN RISK. Scott
(Note: unless stated otherwise, all research data shown above is based on the S&P 500 (ES or INX) for the past 10 years, including commissions, but not slippage.)
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Results
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After entering the trading room, several members said they were surprised that I did not fade the open with at least a small position. I explained that normally I would, but that being in a drawdown always make me more conservative and with very mixed Gap Guides I needed to stand aside at the open.
After the opening bell and a 15 minute reversal, I told folks in the room that I would go long in my discretionary day trading account on a pullback to S1 which just above the opening price of 1283 in the ES. I was filled at 1283.75 and my stop was 1280.75. This was 2 tics below the low of the morning, but directly on the S-2 pivot price level. I decided to leave it there and not move it down a tick or two since I believed that if prices traded down that low, more selling would likely follow. I was wrong.
Prices traded to 1280.75 precisely (and no further) and spring-boarded off of the S-2 pivot after triggering my stop for a 3 point loss at the exact low print of the day. About 30 minutes later all the indices' gaps filled hitting my original target and the extended target at 1288.
It was disappointing to miss this winning gap trade, but it was a real kick in the ..uh... 'lower extremities' to be 'buffaloed' at the low of the day on my trade before it reversed and hit my targets. I am getting a little tired of saying this lately, but "that's trading."
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Tip for Thursday
Historical results for the past 10 years when fading gaps (targeting gap fill) after a 20 day high close that had a lower daily high and lower daily low than its preceding day (using an end of day stop):
- Down gaps: 9/14 (64%) and 1.6 PF
- Up gaps: 6/8 wins (75%) and .8
Note: I will rerun these numbers using MTG stop parameters, as well as consider other unique patterns and charasterics of the current setup for our members in the morning.
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