Trading Conservatively With mnGapAutotrader

With increased market volatility recently and no clear directional trend we have decided to trade the opening gap conservatively with mnGapAutotrader.

So far it is paying off, as you can see in this post.

Just to recap, mnGapAutotrader automaticaly fades the opening gap. You can set predefined porfit targets according to percentage of gap fill. So if you are trading three futures contracts, then you could set th eporfit targets, as follows:

• Target 1: 50% of gap fill
• Target 2: 100% of gap fill
• Target 3: 125% of gap fill

This creates a good risk reward ratio, however as th efinal target is 25% beyond the opening gap, we see this is a more agressive type of trade which yields more porfits, but also increases risk as price may not reach 125% of the closed gap.

Instead, we have been adopting a more conservative approach with mnGapAutotrader by reducing our profit targets, so that they are:

• Target 1: 25% of gap fill
• Target 2: 50% of gap fill
• Target 3: 100% of gap fill

This approach is paying off as you can see from the Dow e-mini futures (YM) trade on 15th June 2010 (see the chart below).

Even though gap fill was not achieved, and the trades were stopped out, our losses were reduced by hitting the first profit target at 25% of gap fill.

Click for larger image