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Delayed Gap Up Sell Signal

Delayed Gap Up Sell Signal

1. In the event of a gap higher open, the initial procedure will be the same as the original gap method (GO). You will enter a sell stop two ticks below the high of the previous day.

2. After the first hour of trading, you will check the market. If the current price is below the opening price, you will sell short at the market using either a risk management dollar stop or a stop loss several ticks above the current high of the day.

3. If the market is not below the opening price, you will enter a sell stop order two ticks below the then-current low of the day in order to get you short. In addition, you may retain your original gap-sell-stop two ticks below the high of the previous day in the event that the market begins to move strongly down, thereby giving you two units on the short side.

Figures 6-7 and 6-8 illustrate the 1-hour delay gap sell signal.

As you can see, the one hour gap signal is a technique which allows quicker entry in the event of potentially large moves on the opening, which could limit the potential profit from a delayed buy gap or a delayed sell gap. The best time to use this approach is of course in marВэkets which have opened on significantly large gaps down or up from the previous day's low. Finally, remember, that the DGO requires waitВэing one hour. I have not experimented with different time delays.

I've said previously that the gap technique is one of my favorite day-trading methods. I say this because I have seen many instances in which the gaps have worked extremely well and have produced very significant intraday price moves. Naturally, it is important to remember that this approach should be used primarily in markets which will have sufficient intraday volatility to permit reasonably profitable moves. Among my favorites for the gap trades are S&P, currency, treasury bond, crude oil, and precious metals futures. But this list will not be constant; it will change as a function of market conditions and trading volume.

History shows that some of the largest intraday price moves have occurred following gap higher or gap lower openings, particularly folВэlowing a major news event or government report. One thing I like to look at in terms of gaps is the direction of the market prior to the gap. I've found that if the market has been trending down for a fairly extendВэed period and if the gap lower opening is prompted by bearish news then the signal tends to be more accurate as well as offering greater dolВэlar potential if it occurs. However, a gap higher opening following a bullish trend and bullish news which then turns into a gap sell signal tends to produce very good profits with reasonably low risk. Therefore, I would suggest very strongly that you monitor markets very closely for gap openings following bearish or bullish reports.

Gap trades also seem to work better with market sentiment as a filter. This will be explained more fully later on when I discuss my DSI (daily sentiment index).