Constructing mechanical gap-fade entry and exit rules

A gap trade is a worksheet

The historical workflow encodes a gap trade as one mechanical procedure. The parts that have to be written down together are the gap measurement, the percent cutoffs, the side choice, the bar-count-exit, the fill-convention, and the flat-book-gate.

Editorial reading: keep those parts on one worksheet so a fade encoding cannot be tested as if it were a gap-follow-encoding. The archive facts describe the historical workflow. They do not rank the encodings.

Lock the gap measurement

A mechanical gap procedure can define the close-to-close-gap as one hundred times the change from the prior close to the current close, divided by the prior close. Later cutoffs read that single number.

A construction variant can measure the open-to-prior-close-gap instead: the percent change from the prior close to the current open. Editorial reading: once the rest of the worksheet is locked, those two measurements are different procedures.

Lock the side and the percent cutoffs

A long-entry rule can fire when the close-to-close-gap reaches a minus-three threshold. That rule is a gap-fade-long, a long entry taken after a sufficiently large negative gap.

A short-entry rule can fire when the close-to-close-gap reaches a plus-three threshold. That rule is a gap-fade-short, a short entry taken after a sufficiently large positive gap.

Side choice remains a separate construction decision. One encoding buys a large down gap and shorts a large up gap. Another encoding, a gap-follow-encoding, buys a large up gap and shorts a large down gap.

Lock the exits, the fill clock, and the gate

The matching exits can be a one-bar hold after the long entry and a two-bar hold after the short entry. Each matching exit is a bar-count-exit, which closes the trade after a fixed number of bars rather than a price target.

The same procedure can specify that both the entry and the exit fill at the close with zero delay. That fill-convention keeps the entry and exit clocks aligned with the rules.

A new long or short gap entry can be allowed only when the book is already flat. The flat-book-gate blocks a new gap entry while a position is already open.

Record the open-based variant separately

A construction variant can measure the gap from the prior close to the current open instead of close to close. That open-based variant can use a one-percent threshold and a one-bar hold on both the long and the short side.

Editorial reading: changing the measurement, the cutoff, and the hold together writes a new worksheet. It does not revise the close-to-close fade in place.