Daily Wrap: Small gaps up in the D-H zone after Options Expiration Friday
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Read the newest "Member Spotlight: The Gap Guy from North Carolina" as he shares his 4+ year results as well as some words of wisdom.
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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, most indices are showing small to mid-sized gaps UP above Friday's highs.
Risk Factors
- Gap Size: Small gaps (<15% of the 5 day ATR in size i.e. < 2.0 pts in the ES today) have HIGHER win rates than the averages shown in the Guides, BUT increase the risk and impact of mixed opening directions/zones, execution errors, slippage and commissions.
- Unique Day/Patterns (assuming MTG stops):
- Fading UP gaps on the day following Options Expiration Friday: 29/49 wins (59%) and 1.0 PF
- Fading D-H zone gaps during bull markets (>10 and 200 DMAs): 17/31 wins (55%) BUT 1.4 PF
- Closing Variance: .75 pts today. The ES closed at 1360.25 on Friday which is HIGHER than where it was trading when at 4pm (when the SPY closed) which was at 1359.5. This is a risk factor and consideration for target placement.
Supportive Factors
- Gap Guides: though sample sizes are somewhat small due to Friday, being a "false down day" (closed higher than prior day, but below its open), they are overall attractive in terms of profit factor but with neutral to slightly attractive win rates.
- Unique Day/Patterns (assuming MTG stops):
- Fading UP gaps after a 100 day high close when < 40% of the 5 day ATR in size: 48/59 wins (81%) and 2.0 PF
Bottom Line
The Guides are slightly attractive and Friday was a 100 day high close, so I will fade the open with a speculative position size (about 1/3) since today is the day following a holiday and since the Guides don't technically meet my win rate minimum. Note: the ES must be between 2 and 5 pts in size for me to fade today. Otherwise no trade for me.
TRADE AT OWN RISK. Scott
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Results
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I was filled short at 1362.5 in the ES and targeted the entire position at the gap fill area of 1360.5. My target was filled shortly after the open for a fast and easy win of 2 pts - just the way I like them.
Note: Since I am at NY Traders Expo, and since yesterday was a holiday and I generally trade very conservatively, if at all, after a long weekend, I opted not to hold any of the position for the extended target of 1258.5 (though the guides did show good odds for the extended target for today). As it turned out, price did hit, but did not trade through this price level, immediately after the gap filled.
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Tip for Tomorow
Sorry - am traveling and have a very tight schedule so I will not be able to provide a tip for Wednesday.
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