11/18/2023 0 Comments Stock gap fill strategy![]() ![]() Why do some investors prefer gap fill stocks.What are the characteristics of a gap fill stock.What is the definition of a gap fill stock.# EURGBP Fill Ratio: 81.00% # The fill ratio is saying that whenever we encounter any type of gap on the EURUSD and EURGBP, we have a probability of 78% and 81% of seeing it filled. The below are a sample of the results on hourly data: # EURUSD Fill Ratio: 78.00% If we encounter an up gap which gives us a bearish signal, we will wait until it is filled or another gap is encountered which in case we consider the first gap unfilled. If we encounter a down gap which gives us a bullish signal, we will wait until it is filled or another gap is encountered which in case we consider the first gap unfilled. ![]() The fill ratio measures the percentage of gaps that have been filled before the market encounters another gap. Total_net_losses = abs(total_net_losses) fill_ratio = len(total_net_profits) / (len(total_net_losses) + len(total_net_profits)) def quality(Data, buy, sell, where):ĭata = Data - Data If Data > Data and abs(Data - Data) >= width: ![]() Width = 0.0005 # 5 pips Gap example for Hourly OHLC data def signal(Data, opening, close, width, buy, sell): Let us take a look at the scanner function below: This means that if the gap is 5 pips wide, and we trade directly based on it, we can expect 4.8 pips gain after accounting for the spread. I say maximum profit because our target on the gap trade is to fill it. Taking into account a 0.2 spread, an example of maximum profit on EURUSD would be 5–0.2 = 4.8 pips which is $4.8 on a mini lot account with 1:100 leverage. Therefore, we can consider that at least a 5 pips gap is worthy of being traded. On hourly FX data, we cannot really say that 1 or 2 pips are worthy of a gap. The width: This is your threshold where you would say for certain that there is a gap. What variables can we use to populate the scanner function? I would say the width variable is the most important one. Just as we detect common gaps with our eyes, we can code a recursive algorithm that does the same thing for us. Also, the runaway and exhaustion gaps are so similar that it is almost impossible to know which is which at the moment they appear, therefore, they suffer from hindsight bias. Note that most of the above specificities come from personal experience as some sources state that common gaps are least likely to be filled. It signals acceleration in the new trend.Ī runaway gap: It generally occurs within the trend but it confirms it more, therefore, it is a continuation pattern.Īn exhaustion gap: It generally occurs at the end of a trend and close to a support or resistance level. It is likely to be filled because of the market’s mean-reversion dynamic.Ī breakaway gap: It generally resembles a common gap but the gap occurs above a graphical resistance or below a graphical support. There are different types of gaps and distinguishing them can be quite tricky:Ī common gap: It generally occurs in a sideways markets. “We call the act of trading based on gaps: Playing the gap.” Since it is traded all day long for 5 days a week, the presumed gaps would probably look like giant candles, but since we cannot know for sure, we will stick to the common definition of gaps. In the currencies market, the visible gaps are the ones that occur during the weekend. Gaps can occur due to fundamental and technical reasons, but we are mostly interested in identifying and trading them. Trend Following Strategies in Python: How to Use Indicators to Follow the Trend.Ī: Trend Following Strategies in Python: How to Use Indicators to Follow the Trend.: 9798756939620: Kaabar… Two filled gaps on the GBPUSD. If you feel that this interests you, feel free to visit the below Amazon link, or if you prefer to buy the PDF version, you could contact me on LinkedIn. Also, this book features the original colors after having optimized for printing costs. It features advanced trend-following indicators and strategies with a GitHub page dedicated to the continuously updated code. If you are interested by trend following indicators and strategies then my book could interest you. From that we can evaluate the fill ratio of the gap. In this article, we will see the different types of gaps and then code a scanner in Python that finds them and applies the well-known practice of “ filling the gaps ”. ![]() For instance, in the currencies market, they usually happen on opening following the weekend or whenever there is a big announcement while in stocks, gaps are fairly common from one day to another. They vary in rareness from market to market. Gaps form an important part of price action. ![]()
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