The Dow was still up about 30 points and the S&P up a few points also, but could not hang on to the early gains. Much of the move came early in the night session and the mornings open prices jumped to catch up to what the futures traders deemed as fair value. That value was later adjusted in lower prices as the session went on.
Often times when you see a gap opening, it gets filled. Most of the time depending on the size of the gap, it gets filled quickly, but not today. When you see a jump in the opening prices, their are no stocks that had a chance to trade in between that gap, again after the open. Prices tend to fall back and “fill the trading gap” as it is called, usually around 70% of the time and do it rather quickly. So, having a good strategy for playing the gap openings, is a good idea.
As traders, you need to have an entry that is low risk. You can not just sell after the open, because you see a gap higher. You need to know exactly where your lowest risk entry will be and then you can enjoy the strategy. At times it does not come back all that fast as in today, where it was dragged out for some time. Only until late in the session did prices give up their hold on the market to adjust itself. The S&P filled the trading gap to the tick and held while the Dow still has about 30 points or so for its gap to get filled. We are likely to see it filled in the early session tomorrow, then we will see what the markets true intentions are.
When you have gap days, it is best to get the gap filled quickly, because it tends to pull on the market. Once filled, the market is somewhat re-balanced and it can continue on with normal market flow patterns.
This is just something to be aware of, if you see it again in the future. I have one screen devoted to little or no indicators and on that screen I have a separate window using a 2 minute chart of the S&P futures and a 2 minute chart of the cash Dow. For the futures, I use a continuous contract chart with a .d after the symbol. In Trade Station it is @es.d for a continuous contract chart of the S&P 500 emini without the globex or night trading in it. So in this chart you only see the price action start at the open. It is very easy to spot where any trading gaps are by using this type of chart. In addition, it is no secret that I trade using tick charts, but I do look at time charts for a variety of reasons. I glance at them to see if their are discrepancies between the two style charts. Time charts show me when the market is slow at a glance as bars are being posted with little or no movement behind them. In addition, support and resistance analysis can get thrown off when using different tools. Also, this shows me, what the bulk of other traders are looking at and how they might react.
I am sure the 80/20 rule would apply to the amount of traders that use time charts to tick charts, 80% using time charts and 20% using tick charts or some other style. (range charts, volume charts)
In today’s trading I did not make my daily goal. It happens sometimes and I am not crying about it. Losses are apart of trading and I had some today. It wasn’t bad in that I was only down about 1.50 points or so, but it didn’t have to be that way. I had a good trade working and added one more contract to it and was up about 4 points at one point, just what I was looking for. Problem was, I had to leave the room for a few moments to long. With stop in place, the market ran up and immediately ran right straight back down to my original stop for -3 ticks. To go from +4 points and see it closed out at -3 ticks is not typical for me, that is for sure, but it happened and felt a bit stressed looking for trades before the market closed on me at the end of the session, not usually a good idea.
I didn’t really have a choice but to check on something and it cost me. Of all the days to see a top like that come so quickly with a hard reverse. I could have had a target and cancel set up, so if my target was filled, my stop gets canceled. I didn’t have it set for that and would have to have it in place at the time of entry, so I live with it. Tomorrow is a new day and new opportunities and I am sure I will find them.
Until next time, good trading.
