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2016issue C0449-55

Gap-reversal entry and trailing-stop rules

A long is considered only after a 10 percent gap down and a first-hour lift above the session low. The coded entry is a buy-stop, new entries stop after 10:30, and a 40-cent trailing stop is set with the entry.

  • A long is considered only when the open is at least 10 percent below the prior close and price then lifts a fixed amount above the session low during the first hour.
  • The coded long entry is a stop at the session low plus 50 cents, not a market order at the open.
  • New entries are disallowed after 10:30, so the first-hour window is an explicit abstention rule.
  • Once a position is open, a 40-cent trailing stop ratchets with price and is set as part of the same procedure as the entry.
Entries in this reading3 entries
Current trackGap trading24 readingsTrailing stop122 readingsRule-based entry292 readings

The gap filter and the first-hour lift

The procedure only considers a long after the open is at least 10 percent below the prior close and price then lifts a fixed amount above the session low during the first hour.

The coded buy-stop

The coded long entry is a stop at the session low plus 50 cents, not a market order at the open. Rule-based entry waits for that buy-stop rather than buying the gap at the open.

The cutoff after 10:30

New entries are disallowed after 10:30. The first-hour window is an explicit abstention rule rather than an informal guideline.

The trailing stop set with the entry

Once a position is open, the exit is a 40-cent trailing stop that ratchets with price and is set as part of the same procedure as the entry.

Four candidates from a same-day scan

A same-day scan of Russell 3000 names between 20 and 70 that gapped down at least 10 percent produced four candidates, each entered with a 50-cent buy-stop above the low.

Those four simulated fills split evenly: two closed with gains near 5 to 5.9 percent and two with losses near 3.8 to 4.8 percent when 5 percent profit-target and stop-loss orders were attached to the entry.

Four same-day gap-down names and their simulated returns

A Russell 3000 scan for names in the $20–$70 band that opened at least 10 percent below the prior close produced four candidates. Simulated longs using a 50-cent buy-stop finished up on INCY and PPC and down on NILE and MYL. Those four percentages are the outcomes stated in the TC2000 Traders’ Tips note that accompanies the INCY one-minute screenshot.
A Russell 3000 scan for names in the $20–$70 band that opened at least 10 percent below the prior close produced four candidates. Simulated longs using a 50-cent buy-stop finished up on INCY and PPC and down on NILE and MYL. Those four percentages are the outcomes stated in the TC2000 Traders’ Tips note that accompanies the INCY one-minute screenshot.INCY, MYL, NILE, PPC · 1 minute · 2016-02-11T00:00:00.000Z to 2016-02-11T00:00:00.000Z

The TC2000 desk tied a 5 percent profit target and a 5 percent stop to the buy-stop instead of the article’s 40-cent trailing stop, and it paused those exits until the buy filled.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
16 of 20 in the Gap trading track
201645-45 pp.Next on Gap tradingConstructing late entries from serial uptrend gapsA serial-gap-sequence is two or more upward gaps, spaced several days apart, whose later gap-up prices stay higher than earlier ones inside one continuous uptrend.
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 year2016134 readings
All 24 readings tagged Gap trading
Also on Gap trading5 readings
1988Constructing short-horizon gap and trailing-stop rules2017Premarket gap permission with cup breakouts and one tight trail1996Constructing closed rules for spikes, time stops and gap failures1999Constructing mechanical gap-fade entry and exit rules1999Evaluating same-session opening-gap rules