Replies to post #15510 on Cycle Trading

[Y worry Murray]

Excellent post Duma. Crude drops on inventory report.

[Y worry Murray]

By multiplying your SSO P60 MACD by 4 I have a phase indicator on my 15 min chart. I will close all positions when it goes into DIS if I don't get stopped out 1st.

[Duma]

Yday I listed Linda's 12 Rules for Swing Trading. #4 caught my attention as I noted. It says, "The larger the market gaps, the greater the odds of continuation and a trend."

The more I thought about it last night the more I realized how true it was for the one simple reason that I have observed and talked about many times. Almost all the market gaps come during Wave 3 and many times early in the wave. Therefore the odds of a continuation of the trend in very good as she stated. And as I have talked about many times, wave 3 is the only must trade wave, all the others are optional.

Looking at the current SSO chart, what I believe is w3 has already had 2 gaps, on the 28th and 29th to start the wave. Then we had a big gap today in what I think is w5, but could it still be w3? We will be able to answer that question later.

So yes I very much agree with her statement. But I thought I would look at it from a day trader standpoint. Can the gaps be traded for the day only?

So to do this I used SSO as a database from Jan 2, 2015 to Jul 6, 2016, but only looking at upward gaps. I defined a gap as an open higher than the high of the previous day.

So here are my data:



I drew three conclusions:

1. The smaller the gap the higher probability it will get filled. Duh!
2. After the initial gap opening there seems to not much else left for a gain except for the .50 to 1% gaps. The average previous close to gap opening is 1.48%, the total gain for the day is 2.26%, leaving a gain of .78% for trading from the open to close.
3. Within this sweet spot there was about 1 trade per month. This is too small for me to deal with. I would rather put my energies in trading the swings and especially wave 3's.

Many times I have seen gaps fade only to start climbing again. A lot of traders like to trade these fads, but it is difficult to time from my experience.