Understanding Gaps

Item Number:  4600-E
Date Published:  2008
Publisher:  Traders Press, Inc.
Number of Pages / Length:  66
Format:  Electronic Version
Shipping Availability:  Available for Immediate Download.

Price: 24.95

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Author(s):

Scott Andrews

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Scott Andrews has spoken at many financial and internet conferences and is a decorated aviator of the first Gulf War. He earned his MBA from the University of North Carolina and graduated from the United States Military Academy (West Point).

With his first trade in 1991, Andrews has been trading full time for a living since 2004. At the encouragement of fellow traders, he started calling out his daily gap plays in a live trading room in early 2007. During this time, he earned the nickname, "Gap Guy."

Scott Andrews is currently president of "Master The Gap, Inc." and resides in North Carolina with his wife and four daughters.

Synopsis:

Electronic Version

Understanding Gaps is part of an ongoing series of publications of Traders Press Inc®. Each book in this series is intended to provide traders with an “up-close” look at a topic which has had little in depth coverage in other trading related literature…and to provide a source of additional information as well as a listing of other sources and articles from which the reader may learn more about the topic covered.

Description:

Softcover version is available by clicking here.

The idea for this latest addition to our “Understanding…”series was born when I had the pleasure of meeting Scott Andrews at the New York Traders Expo in February 2008. It became readily apparent from our conversation there that he had spent a great deal of time and effort studying opening gaps, a topic about which I had seen little written and which I felt would of great interest and value to fellow traders. In my opinion, Scott, “The Gap Guy”, is one of the world’s foremost experts on gaps and how they might be profitably traded.

It is our hope that his research and comments on gaps will help you to advance your skills and knowledge as a trader, and will prove a valuable resource to your trading library.

Edward Dobson, President May 21, 2008
Traders Press, Inc.
Greenville SC

INTRODUCTION 1
Why I Love Trading Gaps 2
WHAT ARE GAPS? 4
The Basics 4
How To Use & Profit from Gaps 9
The Promise of Gaps 10
The Paradox 11
CREATING A PROFITABLE STRATEGY 13
Gap Size 13
Gap Zone 14
Seasonality 15
Stop Size 16
Target Optimization 18
REAL WORLD EXAMPLES 20
How I Trade Gaps 20
Gap Fade Examples 22
“Go With” Example 35
“Fade the Fill” Example 37
GAP TRADING TIPS 39
GET STARTED! 41
Conclusion 44
GLOSSARY 46
BIBLIOGRAPHY 49

Book Review:

In the parlance of technical analysis, a gap is usually defined as occurring when the opening price of today’s trading session is above or below the close of the previous day’s trading session. This is a common occurrence in virtually all active markets, to include stocks, futures, ETF’s, and other trading media. Gaps have always fascinated me as a trader, due to the well known fact that most (but not all) opening gaps are usually “filled” the same day they are created. This high probability occurrence gives rise to the temptation to “fade” a given day’s gap with the intention of closing the position when (and if) the gap is filled, by price returning to the previous day’s closing price level.

Nearly 40 years ago, as a futures broker in New York, I remember like it was yesterday making trades for my own trading account and for clients in which we would “fade” opening gaps, hoping to profit when they were filled. Most of the literature I’ve ever read on gaps has been quite superficial and has offered little if any advice on how to actually trade them.

It was my privilege and pleasure to meet Scott Andrews, the self-proclaimed “Gap Guy” (author of this book) at the Traders Expo in February, 2008. We had a number of fascinating conversations about his study of and work with gaps at this show, which led to the publication of this book by Traders Press.

Scott, a West Point graduate and Army veteran, shows the same degree of discipline in his relentless pursuit of knowledge about gaps as one might expect from one of his background. “Understanding Gaps” gives the benefit of his painstaking and thorough research into gaps and how they might be profitably traded. He starts with an explanation of gaps, what they are, and examples of several types, all with illustrations. Most existing literature on the subject stops here….which is just the bare beginning of the coverage in this valuable and informative book. The results of extensive research into gaps are presented, and cover a myriad of approaches to analyzing them…including seasonality, day of the week, gap size, where the gap occurs relative to the previous day’s range, and many other aspects…with exact probability studies for each approach.

The balance of the book deals with Andrews’ own approach to trading gaps, and is replete with numerous examples and illustrations of trades he has personally made. He offers useful counsel and observations based both on personal experience and on his research which will provide solid guidance for traders interested in learning a methodology based on gaps. It should be noted that the entire focus of the book is on trading the opening gap in the S&P E-mini futures. Andrews ignores the “night session” and considers an opening gap as the difference between the close at 4:15 PM EST and the opening the next morning at 9:30 AM EST.

This book reads easily and flows smoothly, is well written and will serve as a valuable resource for serious traders. A detailed bibliography lists extensive additional resources and information on the subject of gaps. Andrews’ own website is a valuable resource and is cited in the book. Additional information and table of contents are available at http://www.traderspress.com

Review by Edward Dobson, President
Traders Press, Inc.
Greenville SC