Understanding The Odds (Page3):

Trading The Opening Gap in the Mini Index Futures Contract

In summary, successful gap trading requires a series of considerations taken (1) before the market opens, (2) as the market opens, and (3) thirty minutes after market open if the gap has not yet closed:

1. Before the market opens: Prior day closing Trin readings: A closing Trin near or above 2.0 typically results in an early swing to the upside. A Trin near or lower than .5 can mean a swing to the downside. Mark overnight highs and lows that may act as potential support or resistance within the gap area.

2. As the market opens: Use the Gap Size Guidelines table depicted earlier to determine its Common or Breakaway status based on the magnitude of the gap. Assess probability of closure based on gap level historical price information derived either from your own statistical research or from software designed to perform this task. Pay attention to opening NYSE Tick readings. An upside gap on Tick readings less than +300 is likely to close, as is a downside gap on Tick readings greater than -300 (i.e, -100).

3. Thirty minutes after the market opens: If the open on an upside gap is the lowest price traded during the first 30 minutes, the gap is likely Breakaway, as would be a downside gap whose open is the high of the first 30 minutes. Look for opportunities to participate in the direction of the gap rather than against it.

The successful trader, to paraphrase a song made popular by Kenny Rogers in the late seventies, "knows when to hold 'em, and knows when to fold 'em". For them, effective trading has developed into a constant process of creating action plans in direct response to consistently changing market conditions. They participate only if the market develops according to their plan. If not, they simply "fold 'em" and walk away with their eye on the next potential setup. The opening gap trade in the indices offers one such high potential action plan. Learn to trade it effectively and you'll be a significant step closer towards long-term consistent success.

Bob Hunt, developer of the Pattern Trapper Cutting-Edge Indicators Library and creator of the Pattern Trapper On-Line Trading Course and the JumpStart One-On-One Mentoring Program, is a registered CTA with over two decades of trading experience. He can be reached by e-mail at This email address is being protected from spambots. You need JavaScript enabled to view it. or by telephone at 952-892-5550

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