Opening Gap Strategy – Excellent risk reward ratio

Our mnGapAutotrader is an automated trading system that trades the opening gap. As I’ll show now, this system has an excellent risk reward ratio.

We trade our own money with the mnGapAutotrader which shows our faith in the ability of the system to make profitable trades. One of the reasons why the the system is successful is because it has an excellent risk reward ratio.

Because there was a very large gap up today on the Nasdaq futures (NQ), we decided to trade one contract, instead of our normal three contract position. We set the profit target at 100% of gap fill, which was actually very ambitious.

You can see the trade in the image below. The autotrader entered the trade when momentum was moving in the direction of gap fill and automatically placed a stop loss at the high of the entry bar plus one tick.

Click to enlarge

NQ achieved a 25% gap fill before retracing back, eventually stopping the trade out with a long bar.

A losing trade, unfortunately, but what I’m keen to point out is that we only lost $30 plus commission on that trade. If it had achieved gap fill, or we had set the profit target to a more sensible 75% of gap fill, then we would have won over $150 from that one contract.

This is a good example of how the mnGapAutotrader achieves a very favourable risk/reward ratio. It’s losses are generally small, yet it’s wins are large, as you can see from these of live trade results.