Big Opening Gaps Can Fill After All

There was a very large opening gap for all the index futures yesterday and I predicted that it was unlikely to fill. It just goes to show that you cannot second guess the opening gap trade, as the gap did almost fill on the S&P 500 futures after all.

Even though yesterdays opening gap encompassed the R3, R2, R1 and pivot points, the major market reversal that occurred during the day drove price downwards so that it hit the pivot point, which was close to the gap fill price.

You can see the price action in the 5 minute chart of the ES below. The mnGapAutotrader had been stopped out when price made its initial move away from the gap,, however a much larger stoploss setting would (in retrospect) have kept the autotrader in the market, with the potential for very large profits.

The preferential stoploss is marked via the pink line in the image, and the opening gap is marked by the orange lines. You can see that the large stoploss would still have maintained a very good risk reward ratio, however the trader would have taken a severe drawdown if price had carried on upwards with the trend, triggering the stoploss.

This raises an interesting point about the stoploss settings with mnGapAutotrader. One of our users has requested that we allow a user defined stoploss based on a tick value. This makes sense as it will give the user the ability to keep the system in the trade as long as they feel comfortable with the inherent risks involved with bigger stops.

We are currently updating mnGapAutotrader to incorporate user defined stoplosses as a result and will be issuing a free upgrade to our users as soon as possible.

Click to enlarge