Fading Fed Day Opening Gaps the Probability of it!

Posted by kurtosisT

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

KT

Disclaimer