Constructing opening-gap continuation entry and exit rules

A procedure, not a single signal

This construction writes a long-side opening-gap idea as a single procedure. The opening gap is not treated as a complete signal. It is joined to prior-close confirmation, two trend filters, and a two-stage protective stop. The same procedure also names a stand-aside rule.

Writing the opening gap as a first clause

Gap trading is a procedure that treats a session opening away from the prior close as the first clause of an entry rule, not as a complete signal. An opening gap is a session whose first print is displaced from the previous session close.

A long-side opening-gap setup can be written as a session that opens below the prior close and later prints above that same prior close. The construction treats early selling that leaves the open below the prior close as the gap, and later demand that recaptures the prior close as a possible resumption of the existing trend. When a later move carries price back through the prior close after that displaced open, the move is a gap fill.

Prior-close confirmation

The prior close is used as a confirmation line. Prior-close confirmation requires that current price recapture the previous session close before a long entry is allowed. Entry is allowed only above that close.

A one-tick excursion above that close that is sold back through it is treated as a reason not to enter.

Two trend filters

Trend alignment is added by requiring current price to remain above a 21-period simple moving average. A moving average is an arithmetic mean of ordered prices over a stated lookback, used here as an explicit trend-alignment filter. The 21-period simple moving average is a 21-session mean of price that must be below current price for the long-side screen to pass.

A second filter comes from the average directional index, the directional-movement family of readings that compare plus and minus directional pressure over a defined lookback. Plus directional movement is a 9-period measure of upward directional pressure. Minus directional movement is a 9-period measure of downward directional pressure. The filter requires 9-period plus directional movement to exceed both 9-period minus directional movement and a reading of 30.

The five-test long-side screen

The long-side screen is specified as the simultaneous truth of five tests: the open is below the prior close, current price is above the prior close, current price is above the moving average, plus directional movement is above minus directional movement, and plus directional movement is above 30.

The screen is defined on daily-period data and is meant to be re-evaluated on a short clock cycle after the open rather than only once at the daily close.

The two-stage protective stop

After a qualifying entry, an initial protective stop is placed a few ticks below the session open. If the position moves favorably, that stop is later raised to the prior session close. This is the two-stage protective stop: an exit that begins just under the session open and can later be raised to the prior close if the position moves in the trade's favor.