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Gap And Crap
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Gap And Crap

by The MoleApril 17, 2019

Living in Europe I mostly follow the index futures as the underlying cash indices only offer me mostly supplementary context during the RTH session. Although I do enjoy trading stocks and in particular their options the limited trading hours are not just challenging (and sleep depriving) for someone located in Spain but it puts strict limits to the type of activities or systems one is able to pursue as a trader. And this spells particularly true in the type of market we have increasingly found ourselves over the past few months:

Here’s a 1440min (daily) chart of the SPX cash which I have tagged with orange and green boxes. As you probably have already figured out both highlight opening gaps – to the up (in orange) and to the downside (in green).

While one would expect a series of opening gaps during a downtrend and while the same isn’t uncommon on the way up, I couldn’t help but marvel on the number and frequency of the opening gaps that have accompanied the current rally.

I have not taken the time to calculate how many of the gaps are responsible for how much of this advance but on simple visual inspection I’d wager that the number probably ranges between 20% – 30%. Note to myself: write an indicator that plots opening gaps and run some statistics on the them.

Now clearly this is not something that would bother the average institutional traders or even most of the intrepid regulars that frequent this blog. But to a retail rat with a small trading account who’s unable to put up a lot of margin an equity market full of opening gaps represents a clear limitation and most likely a significant source of recurring frustration.

What To Do?

The solution to get around this problem basically boils down to these two options:

  • Reduce your trading window: Trade intraday and exit at the end of the session if your account permits frequent executions (day-trading regulations limit the number of executions permitted for accounts < $50 if I recall correctly). The challenge here however is that you may have to explore completely different types of systems, e.g. mean reversion, swing trading, or even scalping, as much of the post gap price action lately has been non-directional.
  • Extend your trading window: Do the opposite, trade on a daily or weekly basis and omit all the noise. This of course is an entirely different type of game as you most likely will be using daily or weekly charts for your entries, exits, and campaign management. Everything slows down but a benefit is that you end up dealing with a lot less volatility.

Here’s the hourly E-Mini contract and as you can see realized volatility has remained rather contained. Which stands in direct contrast with what I just presented above, doesn’t it? And of course there’s a reason for this as much of the recent advances higher launched overnight or an hour or two before the opening bell.

This in turn then produces a flurry of activity right afterward and it’s easy to see on the 5-min and 1-min Zero panels. Many times participation drops significantly an hour or two later after which the bots take over.

The end result of this is a LV advance on the daily and weekly panels but a rather challenging high volatility situation on an intra-day basis.

How have you adjusted to recent market conditions? Most of you are based in the U.S. and unless you’ve been trading the futures this is something that I’m sure has not escaped your purview.

Okay, time to spoil my subs a little:

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About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at the usual social media waterholes.
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  • http://www.captainboom.com/ captainboom

    You’ve got your orange and green gap discussion backwards Boss. Orange down/green up.

  • bankwalker

    I like to trade options on /ES. They expire on Mondays, Wednesdays, and Fridays. I buy the closest expiration as deep in the money as I need to eliminate time value.

    No margin, adequate liquidity, built in stop, no PDT rules, favorable tax treatment, … love it.

    I wish they were available with liquidity for /NQ, /YM, and /RTY … maybe some day …

  • HD

    bottom line, that’s 5 days in a row they’ve sold a gap up.

  • Sp00nman

    Ya, we’ve had a lot of gap ups on this move up off the lows, and as you pointed out, every close has been lower than the open the last 5 days.

  • bankwalker

    /RTY leading the way down …

  • zzezzezz

    still holding onto my /RTY short from yesterday @ 1588

  • zzezzezz

    got the usual morning spike up on the Zero, but no movement during the “selloff”

  • Yoda

    Gap and crap indeed

  • zzezzezz

    long /ZW

  • zzezzezz

    maybe this time will be different…. 🙂
    what could go wrong?….. 🙂

  • BobbyLow

    I looked into these awhile back and the liquidity was really thin and spreads very wide. Has the liquidity and spread improved?

  • HD

    as usual, the vix was of no help. the laggiest of laggers

  • Darkthirty

    ES .786 of previous…….

  • bankwalker

    Enter a limit order midway between the bid and the ask and you should get filled.

    They are a very good proxy for a futures contract where the margin can be excessive for an IRA account.

  • HD

    $0.64 from key reversal SPX

  • Sp00nman

    Ya who the hell knows. Definitely a lot of chop intraday.

  • BobbyLow

    Yes I understand that going for the middle (Mark) price is the way to go but I’ve found it difficult to get out near Mark in fast moving markets. I usually felt screwed having to chase price going against me to get out. But if you found a way to make them work for you that’s good.

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    Pure Gold Advice

    Extend your trading window: Do the opposite, trade on a daily or weekly basis and omit all the noise. This of course is an entirely different type of game as you most likely will be using daily or weekly charts for your entries, exits, and campaign management. Everything slows down but a benefit is that you end up dealing with a lot less volatility.

    https://uploads.disquscdn.com/images/b43c4f372331324c5c94a62f46d498f15af70731a251440b543cf7770bff3739.png

    -OppositeGerb

  • Jason13

    Yes agree. Tends to be my window of choice for commodities (except Oil)

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    It gets me into a lot of squabbles with Julie.
    different time frames.
    she’s looking at hourly’s or less, and I’m looking at daily’s!

    itchy clouds be damned – he he.

  • Darkthirty

    Is there any set timeframe the algos get reconfigured? Short term this is a crapshoot….

  • HD

    not that i believe chineeese data but 6.4 gdp is a big middle finger to any “trade deal” xi can just ride out this admin and deal with the next admin.

  • HD

    the roll?

  • http://www.captainboom.com/ captainboom

    Exactly. Xi has all the time in the world. President for life.

  • Darkthirty

    Looking at 12 hour cycles, fundamentals are non existent, T/A only works when the machines are idled, need an algo indicator. Maybe hack Bloomberg and put out random news, after you’re in position, of course…… Watching 2910 ES

  • https://evilspeculator.com Sir Mole III

    I’m quite favorable to options as well for many reasons. More of that to come in the future.

  • Mark Shinnick

    Hawaii annexed into official Chinese govt world maps for some years now.

  • zzezzezz

    sold /ZW
    +2 handles

  • zzezzezz

    watching NatGas /NG…. lowest print in last several years… will it finally break below 2.5?

  • Jason13

    The Coug does have her ways;)

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    connect the lows of the last 10 (20?) years.

    https://finviz.com/futures_charts.ashx?t=NG&p=m1

    while everybody likes to talk about heating of homes.
    it’s the usage of NG in manufacturing that counts.
    (at least that’s what I remember)

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    INTC.
    well well.
    I guess somebody gave up and ran it to the firewall.
    [weekly]
    https://stockcharts.com/h-sc/ui?s=INTC&p=W&yr=2&mn=0&dy=0&id=p8562239114c

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • bankwalker

    My guess is that the owners of the algos don’t want the competing owners of the other algos to know what they are doing so they reconfigure whatever they want whenever they want and don’t tell anyone.

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • Mark Shinnick

    BlackRock’s Larry Fink says market has risk of ‘melt up’ not melt down http://fw.to/iBy9kCK

  • mSquare

    He wants to sell you what he owns at better prices (Blackrock is the biggest holder of stocks – $5-6 trillion AUM)

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    hence the patty melts.
    I’m sooo hungry.

  • Mark Shinnick

    Funny…around the time I first saw that item…got a bunch of short triggering.

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    you think they bought on Xmas?
    😉

  • Darkthirty

    It’d be interesting if the market went organic suddenly……

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • Darkthirty

    Where are you getting your data feed / what platform?

  • Julie 35 – 25 – 36

    GG … GLD 120.90 is derived from the weekly chart .. No squable JULIE https://uploads.disquscdn.com/images/f76eb075ea3e6e944660a74eaa068fe83f04fd27a858c44de07bd1f6a4e05b38.png

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • Julie 35 – 25 – 36

    No it’s not GG I also posted last week 121 was make or beak BUT there has not been a definitive break below 121 per momentum and selling volume.A strong 2% or more break below with selling volume would be definitive. I also stated 118 – 119 would be level of interest Let’s watch GLD cloely
    JULIE

  • BobbyLow

    Speaking of gaps, the markets can be full of unsuspecting surprises and this morning was no exception. I took a peek at Crude Futures last night and they were creeping upward and onward which led me to believe that I would get whacked on my remaining short position via OILD. When I opened my platform, I was able to get out the rest my crude short with just a tiny loss and this was good. I’m neutral on crude right now and will wait to see the price action for the rest of the day. But the biggest surprise this morning came from the gigantic drop in the BIO Index that sent my LABD shares up $2.40 per share so far today.

    BTW, I make it a point not to open my platform until just before 10:00 AM. EDT This might sound strange but my drop dead stops are already in and because of the way my candles fall, I have 10:00 AM as the first time during the trading day that is eligible for trading moves (if there are any moves to be made). By 10:00 AM, Crude is out of A/H and has been open for an hour and the NYSE has been open for 30 minutes. This works out well for me because it removes the temptation to make knee jerk moves at the open.

    And opening gaps that go against me are always a threat. One way that I’ve been able to deal with them is from information found from back testing. What I use for “R” is a combination of a percentage of trading capital and what my maximum loss would have been over the previous year. This maximum loss has usually happened from very large opening gap and this type of loss is an outlier compared to other losses. It just so happens that using this combination on Crude and BIO 3X Trades has my R levels at just over 1% per trade. The maximum outlier losses factored into my R levels also help to keep my risk levels at a point where I can trade with confidence and sleep well at night.

  • bankwalker

    Interactive Brokers – Trader Workstation.

  • Julie 35 – 25 – 36

    Hi BL A gap up that is sold into is always a red flag and should be watched closely esp if it occurs when overbought at a resistance level (upper trend line or resistance zone)
    JULIE

  • nirav777

    The assumption you make is that China is the only store in the city, as time moves, so does the opportunity in other markets open.. My cousins marble export company is thriving on +400% business growth in India due to China situation…

    Guess who the are rooting for…

  • Darkthirty

    Sell at bid quarter point isn’t worth the chase….

  • Julie 35 – 25 – 36

    BL Also the 1st hour is the amateur hour and 10 :00 is a good time to open your platform. Amateurs open and pros close
    JULIE

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    maybe North Korea will pop off a missile or something.
    always some drama awaits.

  • bankwalker

    How long has it been since they’ve acted up?

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    three paragraphs BL?
    take it easy. maybe rub in some ben-gay.
    😉

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • Darkthirty

    how much a round turn?

  • BobbyLow

    Yep. One of the things that led me to a 10 AM start was after I first began trading grains. Grains have wierd trading hours and one of the quirks is when they take a break from trading from 8:45 AM until 9:30 AM every morning. The price action a short while before 8:45 AM and then again a short while after the re-open at 9:30 AM can be crazy especially if you have a tight stop. So I chose to have a wide enough stop to get through that BS and found that watching that noise was not helpful at all.

  • Julie 35 – 25 – 36

    The Little Mo Fo has been quiet GG. Either he has come to his senses or has something up his sleeve.He is not to be trusted
    JULIE

  • Julie 35 – 25 – 36

    That’s right GG AND I read every sentence too ! Keep it up BL
    JULIE

  • zzezzezz

    long /ZW

  • BobbyLow

    Quality not quanity. Besides, I’m long winded. LOL

    Seriously though, most seasoned vets have their own way of doing things. But someone new to the business might be wondering what to do if they’re trading ETF’s and are concerned about gaps etc. For them its pretty hard to find alternatives after reading 3 syllable explanations.

    This place is a smorgasbord of information where people can take what they want and leave the rest.

    There I just did another 3 paragraphs – nope this sentence makes it 4 paragraphs. 🙂

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    2901 weekly.

    https://uploads.disquscdn.com/images/d32c887a8a0741d1c5e1fbad31946c78eb48bceaddc2a0448760f500406b04b8.png

    edit: historically RSI 61 is a place of known resistance.

  • bankwalker

    2.84 RT – nickel increments on these if priced low near expiration

  • nirav777

    Zero shots fired on long frame, but rotational divergence can be seen: Zero offers something for everyone,,, except for the undersubscribed

    https://uploads.disquscdn.com/images/818129c1ab23fb69a3ab0c69f46f9f80bb05b0602430d12eb1b69a5fd4df37c6.png

  • Julie 35 – 25 – 36

    Yes GG When the previous weekly RSI falls below 33.33
    JULIE

  • https://evilspeculator.com Sir Mole III

    Looks like we’re getting yet another gap and crap day.

  • https://evilspeculator.com Sir Mole III

    🙂

  • https://evilspeculator.com Sir Mole III

    I’m always appreciative of your input Bobby. And I’m sure everyone else feels the same.

  • Julie 35 – 25 – 36

    Guys I used a saws all for the 1st time yesterday. I cut down some tree branches.A learning curve
    JULIE

  • BobbyLow

    Danke schön. 🙂

  • HD

    Actually I try to not make assumptions. One of the four agreements.

  • HD

    We do need dip buyers.

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • Julie 35 – 25 – 36

    GG I am having low fat cottage cheese ; a banana and a pear
    JULIE

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    https://www.youtube.com/watch?v=Fn50_b4SzdU

    a blonde and a sawzall? god help Grizz.

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    you might want to skip the banana. too much sugar.
    and we know you fell off the diet wagon in Boston!
    😉

  • Julie 35 – 25 – 36

    GG I can change the oil in my car too … That was an all day situation when my husband taught me. I know how to check all fluid levels and add too even the automatic transmission fluid
    JULIE

  • Julie 35 – 25 – 36

    GG I had a few drinks with co workers The mice will play when the cat’s away ! LOL!
    JULIE

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    oh, FYI
    ..if a tree is falling, run in the correct direction.
    OR
    stop. drop & roll.

    https://www.youtube.com/watch?v=hdZXlMl1xG4

  • Darkthirty

    Nice! Thanks, I’ll check them out….

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • http://gerb-reloaded.blogspot.com Gold_Gerb

    oh, one more thing.

    this wrench is especially built for blondes.
    no guessing!
    😉

    https://images-na.ssl-images-amazon.com/images/I/31Tj3HRVIeL._SL500_AC_SS350_.jpg

  • Julie 35 – 25 – 36

    LOL! GG We have a diesel pickup too I have nothing to do with that esp filling it up The diesel gets into my hands ; hair and clothes Yeeecchhh ! ! !
    JULIE

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • Julie 35 – 25 – 36

    SPX 2895 important to hold
    JULIE

  • http://iberianviews.blogspot.com/ catracho

    looks like a minor battle happening now (NDX 7655)

  • Darkthirty

    Lock the arm that’s holding the crossbar, keeps you from getting chainsaw scars on your face…..

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • Julie 35 – 25 – 36
  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • BKXtoZERO

    I am stuck in solder training class today. I thought this was boring stuff when I had to do it 2 years ago…. Recertification is about as exciting as trading this market.

  • bankwalker

    buy TVIX

  • Julie 35 – 25 – 36

    Guys SPX 60 min chart You can see the importance of 2895 which is a support level matching the upper cloud boundary Yup a bounce. Not shown daily chart 2895 is the Ichi Cloud conversion line (8) matching the 60 min chart JULIEJULIEthhttps://uploads.disquscdn.com/images/28ec1431f9b50c166610a8f4e8760dc0843dc084a9f7313db6bf44ab1392881c.png

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • Julie 35 – 25 – 36
  • BKXtoZERO

    I am in some…24 22 20. I hope that pattern ends.

  • BKXtoZERO

    They are even making us solder IC chips by hand. Who the fuck solders chips by hand….sheeez

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    INHALATION: Inhalation of dusts and fumes may cause irritation of the upper respiratory tract. Inhalation of freshly formed metal oxides may cause metal fume fever, a brief (24-48 H) flu-like illness. Inhalation of tin oxide may cause pneumonia.

    I would guess, Asian slave workers.

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • BKXtoZERO

    I do very minimal soldering….but Thanks Gerb

  • zzezzezz

    stopped out at B/E

  • Julie 35 – 25 – 36

    Not so fast GG SPX MACD below it’s signal line and STOCHS have turned down below 80 Bulls have their work cut out GG A bearish close below 2895 per daily and 60 min charts IMO a short JULIE https://uploads.disquscdn.com/images/ecc712fb14f99ba856b2133ca95ac26291bc568c3c7ba8f55215283abbd40fd8.png

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    that’s what I meant. Bull are in trouble.

    have you peeked at BPSPX?

    https://stockcharts.com/h-sc/ui?s=%24BPSPX&p=D&yr=0&mn=6&dy=0&id=p85144430594

  • Julie 35 – 25 – 36

    Thanks GG Nice chart I use the 8 ema along with a MACD 8,13,5
    JULIE

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    Mine’s slower, but superior.
    Yours I assume is for the quicker, pouncier cat.

  • Mark Shinnick

    …as though you were a third world prototyper.

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • Julie 35 – 25 – 36

    GG Way over bought at 79 – 80
    JULIE

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    what’s that saying?
    steep bounces are a BEAR MARKET.

    edit: that last 3 months have been insane short covering.

  • Julie 35 – 25 – 36

    V bottoms too GG NOW a rounded bottom with rising and bullish volume different story. I know how you guys like rounded bottoms LOL!
    JULIE$

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    Market almost closed.

    Is it too early for a dead bear story?
    Great story teller if you have 20 minutes.
    (warning: graphic verbal imagery)

    https://www.youtube.com/watch?v=d-SK1Aok57w

  • Julie 35 – 25 – 36

    GG They are beautiful to see in the wild. MT and WY have a very large grizzly population. The females are esp dangerous with cubs. Grizzly females usually give birth to two cubs rarely three
    JULIE

  • Julie 35 – 25 – 36

    Guys Sunday is Easter and Friday is Good Friday and the market is closed. Everyone Happy Easter and God Bless You All !
    JULIE

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • BobbyLow

    Re-opened Crude short via 3X OILD. This one is a tweener but looks more like a short to me as of this moment so a short it is. It also could be a stop out tomorrow. Never know for sure but if I want to get on a train, I need to pick a direction and buy a ticket.

    In the meantime the S&P Biotech Index is currently down just under 5% today. This sector can really move in either direction and I’m pleased to be short.

  • nirav777

    Not yo per say, but the conversation in general only speaks as if China is the only manufacturer of sorts…

  • BobbyLow

    You too Julie and thanks for the reminder about Good Friday. I forgot all about the 3 day weekend before I shorted oil. But I can re-evaluate it tomorrow so we’ll see what happens.

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    a little gap in your trading process.
    😉

    one word.
    Donepezil
    {snicker}

  • Julie 35 – 25 – 36

    BL USO bearish close today below it’s daily Ichi Cloud conversion line (8) which is a short signal. Again USO weekly chart up into it’s lower cloud boundary. Hang in there BL ! Overbought weekly chart Also USO a 61.8% retracement
    JULIE

  • BobbyLow

    LOL

    One suggestion when you guys get older is to have something to keep your mind active because a lot of bad shit can happen. Even a “mild” case of dementia can mess a person up badly. I’m glad that I have trading to use my mind. It’s like going to a mind gym everyday. 🙂

  • http://gerb-reloaded.blogspot.com Gold_Gerb