Nifty - Trading the Opening Gap

[AW10]

I could not use the first condition of cashmarket gap since i dont have correct cash data but i have taken the second rule and still the results are not encouraging i think the rules are not sound often market goes in the direction of the gap then it may reverse anytime but we dont know when it will reverse so it seems doesnt work.I also tried to optimize values for stoploss and gap size even then not much change it performance.

report link : http://www.4shared.com/account/file/149174328/1af93371/trader_trends_gap.html

PS:I have used investbulls data.

Are u using nifty cash data ? Better to use NF data cause nifty cash data doesn't show valid gap in prev close and open.. They use some absurd calculation to get 1st tick value of Nifty.. Same is true for FTSE spot. Hence better to go for NF data.

Will post my query/observation once I chk the test results.

Happy Trading

 

[trader.trends]

I could not use the first condition of cashmarket gap since i dont have correct cash data but i have taken the second rule and still the results are not encouraging i think the rules are not sound often market goes in the direction of the gap then it may reverse anytime but we dont know when it will reverse so it seems doesnt work.I also tried to optimize values for stoploss and gap size even then not much change it performance.

report link : http://www.4shared.com/account/file/149174328/1af93371/trader_trends_gap.html

PS:I have used investbulls data.

Thanks Raja for the back test. Just shorting/going long at open and holding it with the arbitrary stops of 25 points does not work. Neither does just holding it till close without stops. I guess the strategy needs a little modification which I am working on. The back test throws up so much data, what software do you use for that?

 

[Sunil]

I am attaching some posts where some ideas about gap strategy were discussed:

Median Price = ( H+L)/2 or the code = MP();
H=High
L=Low

If the EoD's MP is placed on Intraday Chart & at Opening the price stays below that or above that then along with our usual Levels we can get a sense of the Direction.

Gaps in 5 mins chart :=

Normally huge Gaps are found to be good for counter trend (against the Gap) but here if the 1st bars MP is breached in 2nd bar either Dn / Up & the 2nd's MP is breached in the same direction like 1st ones in 3rd ,then i would trade towards that direction with 11 points Stop from 1st bar's MP,here normally in the 4th Bar(when at the bar's formation i am initiating my trade ) by then the 1st bar's Low or High would be breached,(here Saint's advise also comes into picture) if by then the 1st bar's H or L not breached then strong b/o is expected above H or below L of 1st bar.

Hi All,

Little bit from my end.. When ever nifty has opening price and day low as same then we will see upside break out. Today is also one day when day low is equal to day open. I have seen this once in last month also may be will post the date in the night. Is there any specific reasons behind this...

HANDLING FIRST 15 - 30 MINS OF TRADE

Normally, it is said that one should wait for first 15 mins or 30 mins of the day, to gauge the market mood. But, for scalpers & intraday traders, this is one of the time zones, where a good directional momentum can be used for one's benefit.

Before proceeding ahead, I would like to refresh this TBQ : TSQ logic

http://www.traderji.com/derivatives...ifty-futures-trading-thread-3.html#post221364

Next one has to observe the first 5 min of trade (ie 9:55 to 10:00), and get a sense of the first 5 min bar which is going to be formed in intraday chart. Actually, this 5 minutes of trade not only forms the first bar of 5min chart (of the day), but also the first hourly bar (ie 9:00 bar = 9:55 to 10:00, 10:00 bar = 10:00 to 11:00, and so on).

THIS IS WHAT TO BE DONE:
At open, see what is sustaining more, TBQs or TSQs during the first 5 mins. From this. one gets an initial idea, in which direction will the first 5 min bar breakout... up or down.
If there are more TBQs, then try to buy near lower level, expecting the 5min bar to break on upside (your stop is known & near)

likewise, if TSQs are more, then short near higher level of initial band, expecting 5 min bar to break down....


Now, one can either keep booking partly at key levels, or keep trailing stop after breakout, or have a combination of both (book out half, and trail for balance).

I am not saying that difference between TBQ & TSQ should keep on increasing or decreasing... as long as TBQ is more than TSQ (for eg), then one should look to go long at dips; vice versa for shorts... my preference is to have a look at both Big's (50) & Mini's (20) TBQ:TSQ for confirmation ie both should have more TBQs, or both should have more TSQs.

here's a recent chart; paper-trade for few days, or use Mini to get an actual feel of it

just to clarify, tbq:tsq will never tell you when to enter, rather, what should be the direction of most of your trades...
Take today for example... At open, tsq was more ; 5 min bar broke on downside ; nifty moved down a decent length
then, after outage break, tbqs were more, nifty crossed a crucial level & zoomed up...
It kept retracing back a bit from key resistance levels, but check out, it was just forming hh hl pattern...

SUITED & TESTED FOR NIFTY TRADING

 

[Sunil]

Post by Renu Daga
http://www.traderji.com/derivatives...trading-part-2-positional-103.html#post218230

Gap Trading Strategies

Full Gap Up: Long

If a stock's opening price is greater than yesterday's high, revisit the 1-minute chart after 10:30 am and set a long (buy) stop two ticks above the high achieved in the first hour of trading. (Note: A 'tick' is defined as the bid/ask spread, usually 1/8 to 1/4 point, depending on the stock.)


Full Gap Up: Short

If the stock gaps up, but there is insufficient buying pressure to sustain the rise, the stock price will level or drop below the opening gap price. Traders can set similar entry signals for short positions as follows:

If a stock's opening price is greater than yesterday's high, revisit the 1-minute chart after 10:30 am and set a short stop equal to two ticks below the low achieved in the first hour of trading.


Full Gap Down: Long

Poor earnings, bad news, organizational changes and market influences can cause a stock's price to drop uncharacteristically. A full gap down occurs when the price is below not only the previous day's close, but the low of the day before as well. A stock whose price opens in a full gap down, then begins to climb immediately, is known as a "Dead Cat Bounce."

If a stock's opening price is less than yesterday's low, set a long stop equal to two ticks more than yesterday's low.


Full Gap Down: Short

If a stock's opening price is less than yesterday's low, revisit the 1-minute chart after 10:30 am and set a short stop equal to two ticks below the low achieved in the first hour of trading.

Partial Gaps​

The difference between a Full and Partial Gap is risk and potential gain. In general, a stock gapping completely above the previous day's high has a significant change in the market's desire to own or sell it. Demand is large enough to force the market maker or floor specialist to make a major price change to accommodate the unfilled orders. Full gapping stocks generally trend farther in one direction than stocks which only partially gap. However, a smaller demand may just require the trading floor to only move price above or below the previous close in order to trigger buying or selling to fill on-hand orders. There is a generally a greater opportunity for gain over several days in full gapping stocks.

If there is not enough interest in selling or buying a stock after the initial orders are filled, the stock will return to its trading range quickly. Entering a trade for a partially gapping stock generally calls for either greater attention or closer trailing stops of 5-6%.


Partial Gap Up: Long

If a stock's opening price is greater than yesterday's close, but not greater than yesterday's high, the condition is considered a Partial Gap Up. The process for a long entry is the same for Full Gaps in that one revisits the 1-minute chart after 10:30 am and set a long (buy) stop two ticks above the high achieved in the first hour of trading.


Partial Gap Up: Short

The short trade process for a partial gap up is the same for Full Gaps in that one revisits the 1-minute chart after 10:30 am and sets a short stop two ticks below the low achieved in the first hour of trading.


Partial Gap Down: Long

If a stock's opening price is less than yesterday's close, revisit the 1 minute chart after 10:30 am and set a buy stop two ticks above the high achieved in the first hour of trading.


Partial Gap Down: Short

The short trade process for a partial gap down is the same for Full Gap Down in that one revisits the 1-minute chart after 10:30AM and sets a short stop two ticks below the low achieved in the first hour of trading.

If a stock's opening price is less than yesterday's close, set a short stop equal to two ticks less than the low achieved in the first hour of trading today.

If the volume requirement is not met, the safest way to play a partial gap is to wait until the price breaks the previous high (on a long trade) or low (on a short trade).



this is one for ones who were interested in gaps,,,


copy and pasted from good source....not my,,, material!!

 

[Karanm]

Many take positions just before market closes with the intention of making money in the opening gap. This more or less becomes a gamble as they don't "know" the direction of open. If it opens against their position, they may close in panic incurring a loss.

Would it better to trade the opening gap after the market opens? The gap theory is that all gaps are closed. The shortcoming of that theory is that it does not say when the gap will close. For the intraday trader if he can have probability on his side that the gap will close the same day, then he can take a position.

I looked at a very minuscule data sample of just one month. September 2009.
We had 20 trading days. On 5 days the opening gap was insignificant.( I considered gaps of less than 15 points as not worth trading.) On 15 days we had gaps we could trade.

On 6 days there was a negative gap (range 20 to 38) and on 9 days positive gaps (range 17.5 to 47). On 4 of the 15 days, the gap was never covered; the opening was almost the day's low/high. After opening, the market of course moved in both directions. Suppose we had taken a trade at opening what would have been the result? Remember that on 11 out of 15 days, the gap was covered. I have taken the gap as covered if the price dropped to +/-5 points towards the previous close.
Enter at the opening gap. Short if the gaps is positive and long if gap is negative.
Stops: 25 points from entry.
Exit: For shorts: Previous close+5, For longs: Previous close-5
Example:
Trade of September 03. Open=4639
Previous close on 02 Sep = 4614.35
On 3rd NF opening gap of 24.55.
Entry: Short at 4639, stops @ 4664. Exit at 4619.35
I have taken the gap as closed if the price dropped to 4619.35 giving profit points of 19.55. This is basically a filter. Same way for gap down opening; 5 points below the previous close. On many days trade could have been taken closer to stops, thus increasing the profits and reducing the losses as NF continued to move in the direction of open.

If we had taken a position at opening (theoretical price) and closed it when it touched our filter level and used a stop loss of 20 or 25 points this would have been the result

Adding the opening gap points for 11 profitable days gives 275 points.
25 points stops 4 days gaps did not close =100points
Net points= 175 on 15 trades. Taking 5 points per trade for cost would have left us with a net point of 100 points.

20 point stops: 6 days. Stops 120 points. Net points = 275-120=155 points. After cost would have left us with 80 points for the month.

Traders taking overnight positions can also perhaps have a stops of 20-25 if their trade has gone against them and wait for the gap filling.
I have attached the excel sheet giving the details.

Caution: Insignificant sample size. This is just an idea floated for the involvement of others.
Do not take the EOD data of OHLC to test this strategy. OHLC does not say when High/Low was achieved and whether High came before the low or vice-versa. It also does not say if the gap was closed before achieving the high/low. I have looked at the tick data for all calculation.

Data Source: Close: NSE, Tickdata: chatreader.co.in

TT

Not a bad idea for the simple way of trading.
Can you put the performance of October,2009 & November till date.