Trading S&P500 gaps has always been fascinating as a high percentage of them fill. Gap trades can provide an additional diversification for full time traders without taking too much time away from their other trades or a quick gain for part time traders with only a few hours to trade at the open. Now ETF Rewind had added a new tab quantifying the odds of different type of gaps to help weed out the potential losers. The new additions cover the largest major and sector ETFs in addition to the original ETF Rewind dashboard, pairs trading and more.
As a starter I noted that downside gap had a higher tendency to fill from last night’s tab. Both Lap Down and Gap Down have an average chance of 80-85% of fill in the recent bull run. For even more refinement, plug in the SPY open price today into the “Test Opening Price” cell and it will point to Lap Down quintile #3 which showed 100% fill rate on recent gaps and a good average trade profit and loss percentage. Shortly after testing last week’s low at today’s open the SPY filled the gap and more.
The current profit target structure implies a move toward yesterday’s closing price for LAPs and a move to yesterday’s high and low point for GAPs. For consideration, there may be a function added to calculate the win/loss ratio if one decides to hold to close. A trailing stop loss may be contemplated depending on the location of the gap or an end of day stop can be considered if the gap does not fill by close.
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