Intraday Bias: Gap Framework

By Lawrence

The intraday biases of the gap framework from Master Emini S&P Gap Trading Techniques are reported in multiple stages within the Emini Real-Time Trading Assistant as time approaches the open time for the regular trading session. I am going to cover the signal names and link to the trading models demonstrating the use of gap setups here. For detail strategic considerations trading the gaps, refer to the master article.

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  • WeeklyOF March 6, 2015 at 4:08 pm

    LC can you please define the following if you were to build a mechanical model:

    1. “Close in neutral zone” , generally what are the rules? ( day closes within opening 30min or 60min candle? , what percentage is the neutral zone? What are the conditions?
    2. Narrow range, is this basically a range of less than 10pts on ES?

    I take it all the days that don’t fit in 1 and 2 will either be Strong close or Weak close.

    • Lawrence March 6, 2015 at 6:11 pm

      Neutral zone is a distribution concept, there are several possible distribution types from a trading day. For the most basic type with one concentrated activity area, closing in inside simply means inside the 1 standard deviation area. It gets more complex when you have to deal with 2 concentrated area, etc.

      Narrow range is a hybrid distribution concept. Based on intraday volatility over the past several days, if suddenly a day does not print as much range coverage as expected (technically, binomial distribution estimation), it is tight range.

      The definition of narrow range can be replaced by average daily range with a percentage offset from standard deviation but it has lower forecasting power than the volatility based one.

      It is possible for days to open trapped inside 2 concentrated activity zones, that will still be neutral BUT very volatility when price manages to escape the zone.

      My gap model is not purely developed for Eminis. It was derived from my work on market making bots and once you enter the world where every tick counts, it is all statistics and higher math. Very annoying but necessary.

      Consider using simplified version of the concepts and compromise by larger volatility based stops, the result will still be consistently good except that equity swings at a greater range.

  • WeeklyOF March 7, 2015 at 2:12 pm

    yes that is where I like to clarity on: 2 concentrated area or double distribution within the day. Let’s say we have a morning distribution and breakout higher above ORH and form 2nd distribution above ORH in the afternoon and we close within 2nd distribution. Both distributions have similar volume. Is this categorized under PD+CL or ( PD?CL )

    • Lawrence March 8, 2015 at 1:16 pm

      afterhour activity will dictate if PD+CL happens depending on how deep it travel back into PD range.

  • WeeklyOF March 7, 2015 at 2:21 pm

    Thursday March 5th, 2015 RT tools triggered PD+CL(Gap Above) but looking at prior day we had closed within center of afternoon distribution and within OR bar. I’d think it would trigger PD?CL

    • Lawrence March 8, 2015 at 1:23 pm

      I do not have the charts with me at the moment. I need to check out the distribution data first to tell you why it chose PD+CL

    • Lawrence March 9, 2015 at 8:57 am

      The algo resolved the ambiguous case with extra measures from Tuesday. As I explained in the framework article, sometimes (rare) it is necessary.

  • abc999 May 17, 2015 at 5:59 am

    Any clue that can tell when to trade fade gap or gap n go?

    • Lawrence May 17, 2015 at 11:28 am

      In real-time the Trading Assistant will alert you the exact gap type, so you know what to do.

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