2016issue C0446-47
Constructing a first-hour long after a large gap-down open
A gap-size filter decides whether a gap-down open is large enough for a same-session reversal fill. A delayed buy-stop then decides when the long may be armed, and the prior-day objective decides when that fill is complete.
- A long gap-fill reversal is considered only when the opening decline is at least 10 percent versus the prior session.
- Opening declines smaller than that threshold stay on an in-trend continuation path instead of being forced into a reversal fill.
- The long is armed only after early-session price has already risen at least 50 cents, using a buy-stop 50 cents above the gap low.
- The same-session exit is planned near the prior day's low, treated as the gap-fill objective.
One procedure from the open to the same-session exit
Gap-trading uses the overnight opening discontinuity as the market-state input that decides whether a same-session fill procedure is even eligible.
When the open is a large decline, reversal-trading treats that drop as a candidate bounce back toward unused prior-session range rather than as a signal to continue lower. The bounce that justifies the long is expected during the first hour of the regular session after a large gap-down open.
Rule-based-entry is a pre-specified buy-stop that fires only after early-session trade lifts a fixed amount above the gap low.
Which gap-down opens qualify
A long gap-fill reversal is considered only when the opening decline is at least 10 percent versus the prior session. That minimum overnight percentage drop is the gap-size filter. It separates reversal-fill candidates from in-trend gap trades.
Opening declines smaller than that 10 percent threshold are assigned to an in-trend continuation procedure instead of the reversal fill.
Where the setup is reviewed
The constructed universe is limited to stocks priced between 20 and 70 dollars and reviewed on a two-day, one-minute chart.
When the buy-stop may arm
The gap low is the lowest print associated with the opening discontinuity. The long trigger is measured from this level.
The long is armed only after early-session price has already risen at least 50 cents, using a buy-stop 50 cents above the gap low.
How the same-day fill is completed
The same-session exit is planned near the prior day's low, treating that level as the gap-fill objective. That prior-day objective is the previous session's low used as the planned same-day exit for a fill of the opening gap.