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Not a single loosing trade so far!
Yesterday's Post and Recap
Yesterday's Post:
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.
Yesterday's 
Recap :
Before Gap: ES opened at 1034, below the close of the prior day(1035.25) in C-L zone. This was a favorable trade with win rate of over 80%. However, potential profit would have been only 1.25 points. I decided to pass on this trade because of a small profit in a choppy market that can have large losses. Those who took this trade, they made their profit in seconds.
Recap :Before Gap: ES opened at 1034, below the close of the prior day(1035.25) in C-L zone. This was a favorable trade with win rate of over 80%. However, potential profit would have been only 1.25 points. I decided to pass on this trade because of a small profit in a choppy market that can have large losses. Those who took this trade, they made their profit in seconds.
After Gap: The valid zone for this trade was O-C zone(1055.50 to 1035.25). However, we opened at 1034, slightly below C. So there was no valid trade.
I made another trade not directly related to this analysis. I went short at 11:50 (at 43.25). The potential profit was about 20 points. But I played extremely conservative and only made a couple of points.
Today's Forecast Summary:
Before Gap - Today's market is very similar to yesterday. The green sections of Table-1 and Table-2 are the desired zones to trade. The common desired zones are O-C zone for short (1034 to 1026.50) and C-L zone for long (1026.50 to 1023).
After Gap - Referring to Table-3 below, if ES opens in O-C zone(1034 to 1026.50) and then closes the gap, there is a 94% chance(profit factor of 7.11) that it will go down an additional 4 points to 1022.50.
Additional Comment - After two days of extreme sell offs, market may be due for a correction. So even though the numbers are good for going short in certain zones, I will be cautious because of this additional factor and may take profit before reaching the full target.
Today's Data:
ES pivot points:
| R3 | 1,060.00 | ||
| Fib 1.618(Hi) | 1,056.50 | ||
| Day 2 Hi | 1,055.75 | ||
| R2 | 1,051.75 | ||
| Fib 1.272(Hi) | 1,049.25 | ||
| High | 1,043.75 | ||
| R1 | 1,039.25 | ||
| Open | 1,034.00 | ||
| Pivot | 1,031.25 | ||
| Day 2 Low | 1,030.25 | ||
| Close | 1,026.50 | ||
| Low | 1,023.00 | ||
| S1 | 1,018.50 | ||
| Fib 1.272(Low) | 1,017.25 | ||
| S2 | 1,010.25 | ||
| S3 | 997.75 |
Table - 1 Gap Fade Probabilities (based on Market Structure)
Profit Target = Gap Close, Stop = 13 points.
| 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 | |
Table - 2 Gap Fade Probabilities(based on timing)
Profit Target = Gap Close, Stop = 13 points.
| Opening Zone | > H | H-O | O-C | C-L | < L | All | All | |
| Short | Short | Short | Long | Long | Longs | Shorts | ||
| PF | 1.95 | 2.75 | 1.96 | 1.67 | 1.15 | 1.28 | 1.55 | |
| PCT Prof | 55% | 72% | 79% | 81% | 56% | 69% | 72% | |
| Avg Loss | $220 | $251 | $330 | $363 | $341 | $325 | $294 | |
| Net Loss | $1,100 | $2,263 | $7,925 | $4,725 | $8,863 | $29,225 | $26,488 | |
| Loose | 5 | 9 | 24 | 13 | 26 | 90 | 90 | |
| Avg Win | $358 | $270 | $169 | $146 | $310 | $188 | $181 | |
| Net Win | $2,150 | $6,213 | $15,538 | $7,900 | $10,225 | $37,500 | $40,950 | |
| Win | 6 | 23 | 92 | 54 | 33 | 200 | 226 | |
| Avg P/L | $95 | $123 | $66 | $47 | $23 | $29 | $46 | |
| Net | $1,050 | $3,950 | $7,613 | $3,175 | $1,363 | $8,275 | $14,463 | |
| Total | 11 | 32 | 116 | 67 | 59 | 290 | 316 | |
Table - 3 After Gap probabilities(based on Market Structure)
Profit Target = 4 points, Stop = 13 points. Conditional probabilities after the gap is filled.
| 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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