I have just completed a study of pivot straddles and there impact on gap fading outcomes. I have only looked at the ES and have used 10 years of 1min data. The assumptions made in this study were as follows:
1. Gaps only greater than 2 ticks were analyzed
2. 10 contracts
3. Exit 100% of Gap
4. Stop Loss 20 ticks (5pts)
5. Position closed at end of day if Gap unfilled
6. Commission $2.40 per contract
Case 1- all Gaps using the above assumptions and
Case 2- the 6 assumptions above but excluding gaps with pivot straddle.
What is a pivot straddle you may ask? Simply it is when the daily pivot is between the previous days close and the current days open. I will now post the results and then explain the results.
Case 1 Results
Case 2 Results
The results are that pivot straddles are a risk to gap fading as we saw today were we tested the Pivot twice but failed to transverse it. My study highlights this over a 10 year period that Pivot straddles reduce gap fading profitability by 12 cents for every $1.00 risked. We can see this by the Profit Factor for All Gaps is 1.15 and when we exclude Gaps where there is a Pivot Straddle we see the Profit Factor increase to 1.27 (ie a factor of 0.12). Furthermore, the percentage of profitable trades increases by 5% when we exclude the Gaps with pivot straddles as we would expect it to. It is also worthy to note that both Gaps up and down preformed similar in the study there was no real bias to long or short trades.
Conclusion, give consideration to pivot straddles when gap fading as they do impact the likelihood of a gap filling on the day.
Hope this helps.
Good trading and may all your trades have fat tails and flat distributions.
Here is some insight for all those gappers out there. Yes today is Fed day here are the numbers based off 10 years of Fed Day Gaps only gaps of scheduled meetings have been used in this study and I have just posted the results from the ES futures.
Assumptions are as follows
1. 10 contracts
2. Exit - 1/2 at 100% of Gap fill
3. Exit - 1/2 at (Gap Fill + 15% of 5d ATR)
4. Stop 5 points
5. Stop to B/E if the price gets to within 2 ticks of Gap Fill
6. Commission $2.40 per contract
In summary, fading both up and down gaps on Fed Day is a losing strategy with a profit factor of 0.82 and profitable 59% of the time. The best is to only fade down gaps on Fed Day as this has a profit factor of 1.76 (tidy return) and is 67.3% profitable. The lesson from this study would be to sit on the sidelines on Fed Day when it gaps up as it is a losing strategy with a PF of 0.48 and only look for a gap fade on a gap down.
Good Trading and may all your trades have fat tails and flat distributions
Concept of an Anchor Chart is to combine multiple time frames into one chart.
This blog post is to:
1. Give a free open source version of the TTM Anchor Charts for Time and Tick and
2. How-to install them.
There are two versions for MultiCharts and for TradeStation all of which were sourced freely from open forums no copyright infringements.
Now download the MC version or the TS version which ever is your preferred platform it is a zip file as it has the additional software ADE and TZU code needed to set it all up.
Lets Deal with MC first, the following series of screen shots is to give you an idea of how it works.
Step 1: install all the downloaded code. Make sure to compile all the code as you install it. You will install ADE, ELC, TZU, TTM Anchors Time and TTM Anchors Ticks.
Step2: read the installation process for ELC and ADE move the appropriate text files to there respective directories. ie that the ADE text file “OHLCV” is moved to the “c:\ADE\Classes” and that the “ADE Generate Class.mex” is in the MC program folder. Also need to make sure that ELCollections.dll’s are moved or in the right place ie. in the Program folder of Multicharts.
Step3: follow the attached screen shots. You can cheat and just open the work spaces now and they should all load properly after the data has been downloaded. However, that takes all the sport out of it. So try and build the setup from scratch by opening the 4 subcharts and 1 main Anchor chart… ie 5min, 5min, 15min, 30min, 60min… and now follow these picture steps.
Now Insert the “TTM Trend Anchor Time” indicator into the Anchor chart looks like this
Now you should get something like this. You have Anchor Charts for Time Series on MC! You can now minimize the the sub charts and just look at the Anchor Chart.
The process of Tick anchors is very similar in the setup but on each subchart there is different hidden indicators. See the following screen shots.
This an extremely important step for you to check that when you load the sub charts that you have the “ADE TickBart” file and not the “ADE TickBarV” file else you will get errors as the subchart won’t collect volume data on a tick chart.
You should end up with something like this on Multicharts
Enjoy Anchors on MC!
Now Lets tackle TS and install Anchor charts for the Trade Station now that you have downloaded the TS zip file with all the required moving parts to load Anchors it is identical in procedure as Multicharts so make sure you install all the ADE and ELC and TZS first like in steps 1 and 2 for MCs. Here are the TS screen shots to walk through the installation.
Anchors for Time Charts.
Now lets look to insert the PaintBar “TTMpb Anchors Time” into the Anchor Chart.
Voila! Anchor Charts on Trade Station! Free
Now lets setup Tick Charts with Anchors Lets insert the indicators !TZS and TSU Save OHLCV ( remember to check that the file is “ADE.TickBarT”. Looks like the screen shot below.
Now lets insert the PaintBar into the Anchor Tick Chart….
Voila! Anchor Tick Charts in Trade Station.
Enjoy your Anchor Charts on the Holidays!
Good Trading and May all your trades have fat tails and flat distributions
Yes we have seen last week 5 Lower POC’s on the Market Profile Yes this is a down trend in formation. General Rule is three lower or high POC’s to say a trend forming.
Also watch for the unfilled gaps on the way down. The Ambush zone is 1068.75 to 1058.50.
Good Trading and may all your trades have fat tails and flat distributions
With 1103.25 the High so far for 2009 if we drop some fibs on the chart from our 1026 swing low to our highs then we can get some idea of levels to watch. Interesting is the mid on this move is 1064.75 which is in close to the 1066.25 unfilled gap magnet. Then on the upside confluence zone to watch:
1. the 23.6 extension on this move 1122.25
2. the mid on the move from 1590.25 to 654 is 1121.50
3. the Yearly R2 at 1120.50 which is not drawn on this chart but refer here.
So I am going to be watching these levels in the coming days and weeks.
Here is a study that I did just recently the numbers are fairly mind blowing but consistent with a lot of sources. The analysis was done from 19 Oct 1999 to 16 Oct 2009 so approx 10 years worth of data was used, test was with no stop just looking for gap fill. So are you sitting down….
the winners are Tuesdays, Wednesdays and Thursday as the best days to fade gaps 70%, 71.2% and 73% respectively as the probability of a gap fill on the ES and 65% - 69% closed within the first hour of trading. In fact the first 15mins was the largest percent of all gaps closed for all days of the week.
Hope this helps and may all your trades have fat tails and flat distributions!
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