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Trading the Measured Move: A Path to Trading Success in a World of Algos and High Frequency Trading by David Halsey

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CHAPTER 12

Profiting from Gap Fills

This chapter will provide you with everything you need to know about trading a gap fill. There are three types of gap fills. We will review how to trade them, the rules to follow when trading, and which gap fills to trust and not to trust. You will learn about no-trade zones and tips that will help you profit from gap fills for the rest of your trading careers.

What Is a Gap?

A gap is created when the market closes after a day of trading and then ­reopens at a different price. The futures markets trade almost 24 hours a day during the trading week. The after-hours trading will create a gap in the morning the next trading day. The gap is the distance between where the market closed and where it opens the next day. A gap is only considered to be filled if it reaches the previous day's close during trading hours.

In What Instruments Do Gap Fills Exist?

A gap can exist in any market including stocks, futures, and forex. The markets that have the most consistent gap fills are in the futures markets. The futures contracts that have the most consistent gap fills are connected to the main indexes. They are the E-mini S&P 500 Index (ES), the E-mini Dow Jones Index (YM), the E-mini Russell 2000 Index (TF) and the E-mini ­Nasdaq 100 Index (NQ). Of all the futures contracts to trade, the ES has the most consistent price action. It is also the contract that we have the most statistical information on, pertaining to the frequency of gap fills.

The Types ...

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