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1996issue C041-5

Constructing closed rules for spikes, time stops and gap failures

A construction can compute entry and exit tests on a signal-series and place the resulting positions in a different trade-series. While a position is open, a missing confirming extreme can force a time-stop-reversal, and a gap-failure is specified as an open beyond the prior extreme that closes back through the range-midpoint.

  • Entry and exit tests can run on a signal-series while the resulting positions are placed in a different trade-series.
  • Failure of the signal-series to print a confirming extreme within a stated window is itself a reverse condition.
  • After first entry, an always-in-reversal construction stays positioned by flipping long to short and short to long rather than going flat.
  • A gap-failure long opens below the prior low and closes above that day's range-midpoint; a gap-failure short opens above the prior high and closes below it.
Entries in this reading3 entries
Current trackGap trading24 readingsTime stop24 readingsRule-based entry292 readings

Signal-series and trade-series

A construction can compute its entry and exit tests on one series while placing the resulting positions in a different series. The signal-series is the series whose conditions generate entries, exits and stay-in-force tests. The trade-series is the instrument that is actually bought or sold when those tests fire.

Percentage-change-spike and stay-in-force tests

A percentage-change-spike fires when a lookback return crosses a chosen up or down threshold. Lookback length, spike thresholds and the confirmation-bar limit are written as parameters so the whole procedure can be varied in tests.

While long, the signal-series can be required to print a new high within a stated window. Failure to do so is itself a reverse-to-short condition. While short, the signal-series can be required to print a new low within a stated window. Failure to do so is itself a reverse-to-long condition. The confirmation-clock is a running count of bars since the last confirming extreme while a position is open.

Time-stop-reversal and always-in-reversal

A time-stop-reversal is a forced flip when the confirmation-clock exceeds a stated bar limit. Listings implement that stop by reversing when a confirming extreme has not appeared for a stated bar count: 50 bars on both sides in one listing, and more than 44 bars without a new high or more than 36 bars without a new low in another.

After the first position is open, one construction stays continuously positioned by reversing long to short and short to long rather than going flat. That always-in-reversal design does not go flat after first entry.

Gap-failure conditions

A gap-failure is an open beyond the prior day's extreme that then closes back through the midpoint of the current day's range. The range-midpoint is the halfway point of the session high and low, used to classify the close as upper-half or lower-half.

A gap-failure long is specified as an open below the prior low together with a close above that day's high-low midpoint. A gap-failure short is specified as an open above the prior high together with a close below that day's high-low midpoint.

S&P 500 with market-thrust indicators, Mar 1995–Feb 1996

MetaStock pane of the S&P 500 from March 1995 through 7 February 1996, with the thrust oscillator, cumulative MT-line and daily market thrust stacked above the index. Values were read off the printed Figure 1 scales, not from a table; the index and MT-line are the only series whose axes can be recovered.
MetaStock pane of the S&P 500 from March 1995 through 7 February 1996, with the thrust oscillator, cumulative MT-line and daily market thrust stacked above the index. Values were read off the printed Figure 1 scales, not from a table; the index and MT-line are the only series whose axes can be recovered.S&P 500 · daily · 1995-03-01T00:00:00.000Z to 1996-02-29T00:00:00.000Z

Daily traces were sampled about twice a month from a low-resolution raster. Market thrust has no readable scale on the figure and is omitted. Oscillator readings are approximate to the nearest 5 units; S&P 500 to the nearest 5 points; MT-line to the nearest 2 units.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
2 of 20 in the Gap trading track
19991-7 pp.Next on Gap tradingOpening-gap same-day fade rulesThe procedure takes a same-session position after an opening gap from the prior close and unwinds that position at the same day's close, without conditioning the exit on whether the trade is ahead or behind.
All readings on this track · 20 readings
  1. 1988Constructing short-horizon gap and trailing-stop rules
  2. 1996Constructing closed rules for spikes, time stops and gap failures
  3. 1999Opening-gap same-day fade rules
  4. 1999Evaluating same-session opening-gap rules
  5. 1999Constructing mechanical gap-fade entry and exit rules
  6. 2000Constructing opening-gap continuation entry and exit rules
  7. 2000Gap types as trade hypotheses
  8. 2003One-day fade-the-gap rules remain unfinished across market climates
  9. 2003Gap and pivot entry rules with stops written before the fill
  10. 2007Evaluating gap and lap opens against short-horizon baselines
  11. 2007Evaluating same-day gap rules across price, momentum, and weekday
  12. 2011Session gaps as a fade-or-follow drill
  13. 2015Testing gap continuation breakouts as one procedure
  14. 2015Downside exhaustion gaps as a ten-session fade procedure
  15. 2016Constructing a gap-fill long as one entry and exit checklist
  16. 2016Gap-reversal entry and trailing-stop rules
  17. 2016Constructing late entries from serial uptrend gaps
  18. 2017Premarket gap permission with cup breakouts and one tight trail
  19. 2018Inside-range gap breakout entry and stop rules
  20. 2020Closing-range breakout after a downside gap
By fieldEntry and exit rules327 readingsBy year1996121 readings
All 24 readings tagged Gap trading
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