Monday, June 4, 2012

Small or no gap

When the gap between the last bar of the prior day and the first bar of the current day is very small (overlapped or less than recent bar), You can treat current day's price action as an extension of the prior day's price action, at least for the first hour or so.

Therefore, when a small reversal bar forms at the trendline from yesterday's down channel, its usually an acceptable trade, even on the first attempt as long as the signal bar is not weak (doji or overlapped). If you take it as a setup, you should expect it to take out the last swing from the prior day.

As the day progresses, a newer clearer trendline will form (b2,18) and will take precedence over prior day's action. Future trades should be evaluated using the recent price action of current day.


  1. Hi Cad,

    athe point where your second arrow is on today's chart I really believed that we has shifted the trend completely and that we could look forward to a strong trend reaching all the way into the close.

    After all this was a good reversal at bar 8 followed by strong trend bars straight to MA, followed by a higher low and bull A2. To me this was a textbook example of a good powerful reversal that would carry into the close likely.

    At which point did you realize that we would reverse down again? To me it was not clear until the H2-failure below bar 16...


    1. The leg down was strong enough to suspect another attempt down.

  2. Cad-
    When you can, pls add a little detail to your Open +/-5 tick trade. E.g., would you have taken it today (Tuesday)? what context factors do you consider? Thanks.

    1. On a huge gap day if the market ticks 5t to close the gap and then turns around and moves away from the gap and goes 5t beyond the open (10t away from extreme), you can try to enter at that point with a 5t stop. This entry is not proven and I do not have statistics to show its a high probability trade. Suggest you try it on SIM and collect data first.

  3. Hi Cad,
    I also shorted below b19.
    But when I saw the TTR between b22 and b28 I exited with 3 points my last contract.
    How did you define your 5 points target? And where your stop-loss was after the first 2.5 points target?

    Many thanks

    1. Target was prior lod. Rounded it up for +5