THE RUNAWAY GAP - when the closing gap doesn't fill

 

THE RUNAWAY GAP - when the closing gap doesn't fill Mark Austin Trading UK's Premier Online FTSE Subscription "Happy New Year to you! Thank you for the outstanding service you have provided this past year. I am a better trader now than I was at the start of 2011 - and that is largely down to your influence. Here's to a happy, healthy and prosperous 2012." Dave Dear Mark, THE RUNAWAY GAP - when the closing gap doesn't fill A closing gap is simply the difference in price between where the FTSE closes and where it opens the next day. Many traders make a healthy living fading the gap close in the early morning session. Myself included! In fact mastering this one technique can be very valuable. Fading means trading in the opposite direction of the gap. So if the FTSE opens higher than the previous close at 4.30pm you would short the market back to the closing level. However to make trading the closing gap a profitable exercise you can't trade all the gaps. The key to success is selection and knowing when the closing gap is ripe to trade and when it's not. I plan on holding a double session on this subject at my forthcoming seminar in April. The reason being, this strategy provides an excellent edge in the market and forms a nice clear trading plan. A few benefits to this strategy: The trades can be done and dusted within a few minutes Clear methodology and linked to order flow Very high win rate - 70% Little preparation needed - 10 minutes before the market opens The trade set ups occur very frequently and once you know what you are looking for its very easy to spot. The set up works in bull and bear markets You don't need complicated charts and software which means this is a perfect lifestyle trading strategy even if you are in full time employment or travelling the world! You can apply the same rules across multiple markets however I decided to specialise on the FTSE 100. Once a trader has identified which gaps to trade and which ones not to, there is also a common development which occurs on the days where the closing gap does not fill. You will see in most cases a surge of volume in the direction of the gap (i.e away from the gap fill) during the last 1 hour of trade (3.30pm -4.30pm). This is basically institutions covering their long or short positions. They do this because many trade the closing gap with an end of day stop and many will cover losing positions towards the end of the day. There is also the fact that if a closing gap does not fill on the same day there is a high probability that the market will continue to trade away from the gap fill. Only 25% of unfilled gaps get filled the next day! For this reason institutions will build positions at the end of the day in anticipation of the market continuing to move away from the gap fill. Its these 2 factors combined which create a surge in volume and momentum during the last h our of trade, away from the gap fill. As a trader there are many ways to profit from this knowledge. One example would be selling or buying a break of the high or low during the last hour of trade. Stops could be the low or high of the previous 5 min bar. Happy trading! Mark Austin mark@markaustintrading.com www.markaustintrading.com   Steve Bradley presents his new trades A Brand new GOLD service Netting over 900 points in just 10 weeks!   *FREE GBP 1000* to trade with if you open an account with Gekko today. 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