The opening gap trading strategy is a high likelihood trading method than can bring good returns to the active day dealer. what is a trade gap
This article will show that this method makes an excellent automated day trading system.
Let’s start off by briefly explaining what an opening gap is. It is created when after normal office several hours trading activity drives the purchase price significantly far from the closing price. When the market opens the next day, there is a huge difference between the price at the start of the new session, and the prior days shutting price.
This creates a gap and a trading opportunity with a high probability of success as research has shown that gaps are filled around 70% of the time during that trading program.
Fading the opening difference
To fill a difference down, buyers must get into the market in power and drive the price upwards so that it travels to, or over and above, the last closing price. This is called remover the gap and brings about a term called difference fill. The same can be applied to filling a space down, even though it is sellers who determine this price action.
A perfect day trading strategy
Fading the opening distance makes an excellent day trading strategy. With a high probability that a sizable space will be filled in that session, traders can place either long or short trades, depending on course of the gap, at the opening price and have a good expectancy that price will move favourably for them.
The price action occurs during that session and may either cause the trade being successful or the puts a stop to being hit if hole fill is not achieved. The trader should always close his position at the end of the day if neither of these scenarios has recently been reached.
Why this is suitable for automated trading
The opening gap trade has a number of known parameters that make it suitable for automated trading. The trade entry point is well know (the opening price) and the trade exit point is also known – the gap fill price. It is also relatively easy to calculate the stop loss position which is necessary if gap load is not achieved.
These types of known parameters can be programmed into an computerized trading system that can then place the deals and undertake effective money management all without involvement from the trader.
This implies a number of tools such as futures agreements can be traded at the same time with no need for a trader to be at the computer screen through the trading session.