Daily Wrap: (No Video) Small to mid-sized gaps up in the U-H zone after an unfilled up gap; plus research on fading gaps the last week of the year
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.
==========================================================================
Pre-market comments: (posted for members at ~9:20 ET daily)
==========================================================================
Greetings,
*** Please help us improve, prioritize our enhancements for 2012, and better communicate with you by taking our Member Survey by year end. ***
As of 9:10 am ET, most indices are showing small to mid-sized gaps up near yesterday's highs.
Risk Factors
- Unique Day/ Patterns (with MTG stop parameters):
- Fading UP gaps between December 22-24th: 6/9 wins and .7 PF
- Fading UP gaps after a 10 day high close that was not a 15 day high close: 18/29 wins (64%) and .8 PF
- Closing Variance: nominal today
- Gap Size:
- Small gaps (< 15% of 5 day ATR in size) have higher win rates than the average shown in the guides, but increase the risk and impact of mixed opening zones/directions, execution errors, slippage and commissions.
Supportive Factors
- Gap Guides: Most are showing neutral to positive historical setups for "UP" gaps today in the U-H or U-HC zones or down in the U-CO zone.
- Unique Day/ Patterns (with MTG stop parameters):
- Fading UP gaps after 10 day high close and after an unfilled up gap: 44/51 wins (86%) and 3.7 PF
- Fading UP gaps after NR7 day (most narrow range day of past 7) on Friday when > 10 DMA and < 40% of the 5 day ATR in size: 10/11 wins and 3.7 PF
- Fading UP gaps after closing >3% higher than 4 days ago: 35/52 wins (67%) and 1.7 PF
Bottom Line:
Been a tough month, but the Guides are pretty good and there are many compelling positives (even more than shown above), so I will fade the open (assuming an up gap) with reduced position size (1/2 - 3/4 ) depending on exactly where the ES opens. Will place some or all of my stop above R2 at 1258.5 ideally. Have a Merry Christmas and Happy Holidays! 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.)
==========================================================================
Results
==========================================================================
I was filled short at 1252.75 in the ES and prices sold off 3 points after the open and traded at 1249.75 - precisely where half of my position's targets were (the other half was 1 tick lower at 1249.5) - but disappointingly did not fill me.
By trading at and within 1 tick of my targets, my proximity rule was triggered, so I tightened my stops to 1254.75 (2 pts above entry.) Technically I could have closed my position (something I rarely do) or tightened my stops to entry. But this was a pretty good setup historically speaking and most indices had yet filled their gaps, and since the gap was small, I didn't want to risk getting stopped at entry. So, I took a calculated risk and let the trade play out.
And to my disappointment, the markets rallied and stopped me for a 2 pt loss - on a trade that basically did everything I wanted it to do, except FILL MY ORDERS. Over the long term, not moving my targets and giving my trades enough room to work, makes me more profits. But some days, it costs you and today was one of those days. Bah hum-bug!
Though December was my worst month of the year (and only my 2nd or 3rd unprofitable month in 2011), I still ended up very nicely in all of my accounts. Considering most investors and hedge funds results during this volatile year, I'll take it. See you next year!
==========================================================================
Tip for Last Week of the Year
Historical results for the past 10 years when fading gaps (targeting gap fill) during the last week of December (26th - 31st) using MTG stop parameters (i.e. 30% of 5 day ATR etc.):
- Down gaps: 7/11 wins (64%) and 1.0 PF
- Up gaps: 14/18 wins (78%) and 2.0 PF
Note: additional studies are posted for our members at "Today's Gap Plays" page on the site to assist members with trading the gap.
| 
