Trade at your own risk!
Not a single loosing trade so far!
Yesterday's post said
"Today's Summary:
Before Gap - Based on the market structure data shown below, If ES opens between high and close of yesterday(
1078.50 to 1075.50), there will be a 74% (Profit factor of 2.37) that the target of 1071 would be hit. However, the timing data does not support it. Being a conservative trader, I will not trade this. Generally Monday and Tuesdays are the worst days for these types of setups.After Gap - Today's calculations data does not support any After Gap play."
Recap of yesterday Action:
Before Gap: ES opened at 1055.50, below the low of the prior day. The profit factor for closing the gap in this area was 0.89 (by Market structure) and 0.80 (by Timing). Both obvious money looser. The market moved only a tick in the direction of closing the gap. So the probability tables helped me avoid a loosing trade.
After Gap: There was no possible high probability After Gap trade.
Today's Summary:
Before Gap - Based on the market structure data shown below in table-1 and table-2, All short trades are excellent(We can ignore the H-O zone because it is only one tick.) The best and likely scenario is if ES opens in O-C zone(1055.50 to 1035.25) The win rate is 85% with a profit factor of 3.17. Can't get much better than this! The corresponding timing data (Table-2) are not quite as good but still very good numbers. So this is a must-trade for me.
If the market opens above the high of yesterday, it is still attractive to go short but not as good as O-C zone.
If the market opens between the close and low(C-L zone, i.e. 1035.25 to 1030.25) there is also a good chance the gap will close (83% by structure and 81% by timing with corresponding PF of 2.21 and 1.25 respectively). I probably will trade this scenario as well.
After Gap - Referring to Table-3 below, if ES opens in O-C zone(1055.50 to 1035.25) and then closes the gap, there is an amazing 94% chance(awesome profit factor of 7.11)that it will go down an additional 4 points to 1031.25.
Additional Comment - Today's stop are set at 12 which are larger than average as a result of recent large price movements. In order to lower my loss and increase my profits, I usually adjust my target and stop according to pivot points. In particular, if the market does not make the moves that I expect in a short period of time (30 - 60 minutes), I will try to manage the trade to get out at as much profit or as little loss that I can. Also because of these large movements, I probably will not go for full gap fill. If I can get 4 points I will be happy.
Today's ES pivot points:
Day 2 Hi - 1078.50
R3 - 1076
Fib 1.618(Hi) - 1071.50
Day 2 Low - 1066.50
R2 - 1066
Fib 1.272(Hi) - 1062.75
High - 1055.75
Open - 1055.50
R1 1050.50Pivot - 1040.50
Close - 1035.25
Low - 1030.25
S1 - 1025Fib 1.272(Low) 1023.25
S2 - 1015
Fib 1.618(Low) 1014.50
S3 - 999.50
Before Gap probabilities
The following info is based on Market Structure:
Profit Target = Gap Close, Stop = 12 points.
Emini S&P Future
What are these rows and columns?
Table - 1
| Opening Zone | > H | H-O | O-C | C-L | < L | All | All | |
| Short | Short | Short | Long | Long | Longs | Shorts | ||
| PF | 1.56 | 0.35 | 3.17 | 2.21 | 2.00 | 2.12 | 1.93 | |
| PCT Prof | 67% | 40% | 85% | 87% | 83% | 84% | 78% | |
| Avg Loss | $321 | $395 | $333 | $450 | $556 | $488 | $349 | |
| Net Loss | $963 | $4,738 | $6,650 | $3,150 | $6,113 | $9,763 | $12,913 | |
| Loose | 3 | 12 | 20 | 7 | 11 | 20 | 37 | |
| Avg Win | $250 | $209 | $180 | $152 | $231 | $197 | $186 | |
| Net Win | $1,500 | $1,675 | $21,088 | $6,975 | $12,225 | $20,688 | $24,925 | |
| Win | 6 | 8 | 117 | 46 | 53 | 105 | 134 | |
| Avg P/L | $60 | $153 | $105 | $72 | $96 | $87 | $70 | |
| Net | $538 | $3,063 | $14,438 | $3,825 | $6,113 | $10,925 | $12,013 | |
| Total | 9 | 20 | 137 | 53 | 64 | 125 | 171 | |
| D-H | D-HO | D-OC | D-CL | D-L | ||||
The following info is based on timing:
Profit Target = Gap Close, Stop = 12 points.
Emini S&P Future
What are these rows and columns?
Table - 2
| Opening Zone | > H | H-O | O-C | C-L | < L | All | All | |
| Short | Short | Short | Long | Long | LONG | SHORT | ||
| PF | 4.57 | 1.28 | 1.83 | 1.25 | 1.11 | 1.09 | 1.67 | |
| PCT Prof | 76.92% | 63.16% | 76.56% | 81.25% | 55.93% | 70.00% | 74.14% | |
| Avg Loss | $250 | $288 | $310 | $423 | $355 | $363 | $301 | |
| Net Loss | $750 | $2,013 | $9,300 | $6,350 | $9,225 | $31,600 | $25,000 | |
| Loose | 3 | 7 | 30 | 15 | 26 | 87 | 83 | |
| Avg Win | $343 | $215 | $173 | $122 | $311 | $170 | $175 | |
| Net Win | $3,425 | $2,575 | $17,000 | $7,925 | $10,250 | $34,538 | $41,688 | |
| Win | 10 | 12 | 98 | 65 | 33 | 203 | 238 | |
| Avg P/L | $206 | $30 | $60 | $20 | $17 | $10 | $52 | |
| Net | $2,675 | $563 | $7,700 | $1,575 | $1,025 | $2,938 | $16,688 | |
| Total | 13 | 19 | 128 | 80 | 59 | 290 | 321 | |
After Gap probabilities
The following info is based on market structure:
Profit Target = 4 points, Stop = 12 points. These are gap close conditional probabilities
Emini S&P Future
What are these rows and columns?
Table - 3
| Opening Zone | > H | H-O | O-C | C-L | < L | All | All | |
| Short | Short | Short | Long | Long | Longs | Shorts | ||
| PF | NA | NA | 7.11 | 1.01 | 0.29 | 0.80 | 7.11 | |
| PCT Prof | --- | --- | 94% | 69% | 50% | 67% | 94% | |
| Avg Loss | $0 | $0 | $475 | $447 | $700 | $498 | $475 | |
| Net Loss | $0 | $0 | $475 | $1,788 | $700 | $2,488 | $475 | |
| Loose | 0 | 0 | 1 | 4 | 1 | 5 | 1 | |
| Avg Win | $0 | $0 | $199 | $200 | $200 | $200 | $199 | |
| Net Win | $0 | $0 | $3,375 | $1,800 | $200 | $2,000 | $3,375 | |
| Win | 0 | 0 | 17 | 9 | 1 | 10 | 17 | |
| Avg P/L | --- | --- | $161 | $1 | $250 | $33 | $161 | |
| Net | $0 | $0 | $2,900 | $13 | $500 | $488 | $2,900 | |
| Total | 0 | 0 | 18 | 13 | 2 | 15 | 18 |
If you need help with reading and using these data please visit Fading Opening Gaps 101.
Gaps are very popular trading tools. If you do a google search on market gap, it will come up about 34,000,000 entries. Many people worked on this subject of gaps 100's of years before internet was invented. Amongst the zillions of gap researchers, Masterthegap does a very good job primarily on calculating the probability for fading the opening gap. They also cover other markets as well as ES. I have come up with some ideas in the engine behind these numbers and I think they are great ideas. I am sure that others have come up with some other great ideas to calculate these probabilities. There are virtually unlimited ways to build this engine. So don't be surprised to see various people who calculate this probabilities are coming up with different numbers. The area of market is not quite inside the domain of exact science.
If you need help with trading in general, the best place I have found so far is LBR Group headed by market wizard Linda Raschke. Beware that most other sites are purely scams.
Good luck and please direct any questions or suggestions!
Copyright © Ali Mohseni 2010 Charts are created using Tradestation software.
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