Thursday, August 03, 2006

Strategy Session: Gaps Above Previous Days High

NOTE: This post updated 1-1-2007 with the following changes: The Gap Above Previous Day's Highs - market hours Strategy is modified. Only the running up intermediate alert remains and the Min Current Volume filter's new setting is 9x.

  • Here are The Odds Maker results from 1-1-2007 representing the last 3 weeks ending 12-29-2006 if all trades from this strategy are SHORTED: (Explanation of The Odds Maker results)
    267 (winning trades)/ 427 (total trades) = 62.53% down at least $0.01 at the close; Average winner = $0.4956, Average loser = $-0.4296, Net winnings = $64.878, Best = $6.71, Worst = $-2.58; Casino Factor = 99.99%. No new trades are made in the 4 hours before the close.

We received this message on our Support Forum the other day:

How can I set up a real-time gap list? One for gaps above the previous day's high, one for gaps below the previous days low. Can this be done after-market hours and pre-market? A configuration would really be great. Thanks.

... and decided to share the strategies here.

How Its Modeled:

The Gap Above Previous Days High set-up includes several filtering conditions (the Gap Below Previous Days Lows uses the opposite filters):

  • Stock must gap up a minimum of 2x its normal volatility
  • Stock must be above yesterday's high
  • Current volume relative to historical average volume must be at least 2x higher (i.e., 2.0)
The alerts we select as triggers within this filtered universe are stocks that: pullback 25% from highs (possible entry point) OR cross daily highs OR running up with momentum.

The Strategies:

The Pre and Post Market Sessions:

Market Hours:

Who Could Benefit:

Anyone interested in gaps and their opportunities will find these strategies of use. Those that trade the Pre and Post Market sessions will also find these strategies as a good starting point to modify on their own. The gaps are closely watched by many traders - therefore watching these stocks could be an important insight into things to come.

A word of advice: Be wary of the choppy markets in this Summer of '06. Take these alerts for possible short-term longs or consider them as fade candidates. Use your other trading skills of trade management to navigate your way.

Footnotes:

  • Link to other Strategy Sessions.
  • Remember that these set-ups are sketches meant to give you an idea how to model your own trading plan. Use this 'as is' or modify it to your own liking as many others do. Know, however, that Trade-Ideas.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, alerts and all other features are for research purposes only and should not be construed as investment advice.

2 comments:

Mark said...

I'm using the software with Scottrade, and this is the only reason I would use trade-ideas. Too bad, I can't see how this strategy works.

It seems like Scottrade went through a lot of trouble to be able to provide their users with this software. It'd be great if they could show how to do useful things with it.

D TradeIdeas said...

Dear Mark,

Sometimes those who are new to our technology express a similar sentiment. The good news is that this easily changes once a trader can understand how Trade-Ideas removes the investigating work in finding the best set-up for a trade.

But before I or anyone else can show you what you are asking for - you've got to provide some answers to questions like: what is your trading style? What are the first 5 rules of your trading plan? Remember your best trade - what did the chart look like?

Remember using Trade-Ideas and its ability to find patterns within a stock and the entire markets technicals means that it is not the tool best suited for you if your search criteria involves fundamental data like EPS, sales/revenue growth, etc. There are ways to use TI with fundamentals, but without knowing how you trade - I'll withhold the how-to until I know more.

If you like we can continue the conversation at david@trade-ideas.com and possibly arrange for a one-on-one training session.

You should also know that Scottrade will soon be upgrading Trade-Ideas to include our backtesting tool The OddsMaker. You'll then be able to answer the 2 best questions a trader can ask, "What should I be trading today?" and "How should I be trading it?"

Good luck. Best,

David