MarketExceptions

I have been trading the opening gaps for quite a while. My opening gap trades are based on some research I do trying to understand the behavior of gaps in various market conditions. It has been profitable for me and some of the other people I helped. In this thread I will share my information with you. I will also suggest the days and the conditions that I think are profitable to trade the gap. But first lets start with basics: Frequently the market opens in the morning at a different price than the price it closed at, the day before. This is called an opening gap. If the market opens higher, it is called an up gap and if it opens lower, it is called a down gap. Statistics shows there is a tendency that the price moves towards the close of yesterday. Many times the price reaches the close of yesterday, in which case we say the gap was filled. In fact, about 70% of all gaps get filled the same day. This should not be a surprise because the close of yesterday is the most important price we have. It is a price that buyers and sellers finally agreed on after a whole day of fighting with each others. This is a price that makes the most psychological impact on traders minds. Experienced traders usually pick a narrow area of market to become master at. This area of opening gap can be the that small area of the market you may want to consider to be your area. There are many advantages in trading the opening gap. The one advantage is that most of the time your trade is done by 11:00 AM, many times much earlier, and you can have the rest of the day for yourself. Generally speaking, there is a tendency that market closes the gap at some point. This is called fading a gap. However, this general tendency is not strong enough to justify the risk and reward for any size gap at any day under any market conditions or recent market patterns. Successful gap traders pick certain gaps under certain conditions that gives them the edge. Just like any other strategy, you want to pick the cream of the crop to trade. I have studied the opening gaps for quite a while. Using my background in probability and statistics, I have worked on many aspects of opening gaps, starting with the most common aspect that is fading a gap.