Thanks for posting. I’m planning on incorporating this very filter into a future article. It’s a filter I’m aware of and have tested, many years ago. However, nothing really materialized into a viable trading system. Yet, I think it’s worth revisiting.

Cheers.

https://www.rockwelltrading.com/gap-trading/

I have been using this article for some time now trading Russell, SP500, DOW, NASDAQ futures. There is usually a trade every day between the big 4. The filter would be if any of the following are TRUE:

1. Yesterday’s candle was a bullish candle (C > O), Today’s open is between yesterday’s open and close. Go Long.

2. Yesterday’s candle was a bullish candle (C > O), Today’s open is between yesterday’s close and high. Go Short.

3. Yesterday’s candle was a bearish candle (C < O), Today's open is between yesterday's open and close. Go Short.

4. Yesterday's candle was a bearish candle (C < O), Today's open is between yesterday's close and low. Go Long.

These are the highest probability zones of gap filling. The link here is something I just uploaded. This is SPY data since January 1993 showing the 10 possible gap trading zones and their continuous average success of filling the gap to present day. The success rates mean that the gap was filled that same day. The fat black line shows about 70% of all gaps no matter the zone fill the same day. I grouped the trades based on:

U- : Yesterday was an 'up' day (bullish candle)
D-: Yesterday was a 'down' day (bearish candle)

U-HC: Yesterday was an 'up' day, and the open today was between yesterday's High and Close (HC)
D-CL: Yesterday was a 'down' day, and the open today was between yesterday's Close and Low (CL)

I grouped the similar categories together with dashed and solid lines so that it is easier to understand what is happening. There is a clear bias to trading the gaps based on zones.

Maybe a gap trading part 3 article?

Thanks again for your work.

Rich, those are similar numbers the original author of the system came up with as well. I think my next test will be to look at more dynamic stops and targets based upon the size of the gap.

On the baseline system, if you optimize the Stop loss and profit target simultaneously and then plot the results on a 3-D graph, will give a different point of reference for a robust system.

Using this process, I found that StpLs = 500 and PrfTg = 400, was a bit more robust solution even though the Total Profit suffered somewhat.

Thanks again for this series.

Rich S.

It’s the standard session hours. 8:30AM Central open and 3:15PM Central close.

high five for sharing. How about session hours? Which do you use on the ES for this strategy?

Gap fading prob –a) Win Rate –b)
Monday 66.6% 70.8%
Tuesday 70.0% 74.0%
Wednesday 71.2% 76.5%
Thursday 73.4% 73.9%
Friday 67.4% 72.4%

(a-Gap fill analysis ES from 19 Oct 1999 to 16 Oct 2009 … http://kurtosistrading.com/blogspot/?p=653
(b-Win Rate by day of the Week 1998 – 2006 … Scott Andrews, Understanding Gaps

Mark Austin in his training on fading FTSE gap mentioned this issue. According to Mark, Monday is the weakest day for closing gap. Some significant events can happen over the weekend and also many people get a chance to read and analyze the situation during this time. By Monday morning, they have decided whether to buy or sell and therefore Monday is less likely for gap to close. Friday however is a good day to short the up gap because many share traders would like to take profit and close their position heading to the weekend.

There is a lot of historical market data being used. Your error may be happening due to a problem related to available computer resources (memory). Reboot your computer and give it a try again. If that does not work, you may want to limit the historical data to only 5 years or so.

1. I open the TS workspace but it shows :
“Unable to allocate memory for large data request, reduce
the range of dat being requested.”

2. No trade result find in :
Strategy With Day-of-Week Filter
Strategy With Gap Size Filter

I don’t know what is wrong ?