It is not unusual to hear individuals ask about trading the "high probability" gap trades. It seems that there is a perception (by some traders) that e-mini gap trading falls into the sure-fire trade class of trades. Note: I have yet to locate a sure-fire trade in several decades of trading.
In my experience, gap trading is nothing near a high probability trade. To be sure, for e-mini scalping traders, nothing could be farther from the truth. It's true that the market tends to fill gaps, but the timing of a fill can be elusive. It may take hours for the gap to fill, or the fill may take place several days later. For a scalper, the notion that gap trading is a high probability endeavor is a misnomer. That being said, there are days when intra-day gaps are filled almost immediately, which can lead one to think that this e-mini trading behavior is the norm. In my trading, I have found that gaps occasionally fill at the onset of trading, but this trading behavior is hardly the norm. I know of few e-mini traders who take an automatic short on a long gap because the probability does not favor a profitable trade.
Let's take a moment and give the term gap a definition: A gap occurs when the closing e-mini price from the prior day differs from opening of the present day. However, it is important to consider the prior days range in determining what sort of gap you are working with on your chart. Especially if you are a scalper and using minute charts as oppose to hourly or daily charts.
When talking about gaps, most e-mini traders are looking at intraday charts and see a large range between the prior days close and the next day's open. At this point, the cry is sounded for the "high probability" gap trade. This type of gap is an intra-day gap and they occur on an almost daily basis.
However, let's change our charting from the usual scalper's 3-5 minute chart and examine gaps on daily chart. Given the range on a daily chart, the true gap is far less frequent than those found on intraday charts, where gaps are a daily occurrence. This makes the intraday formation somewhat diminished when compared to finding the same formation on a daily chart, and accounts for the reason the market is hesitant to fill in a timely fashion. In truth, when compared to the daily chart, there was no gap at all. In short, we have set up the reasons that intraday trading gaps can be somewhat erratic in filling in a timely fashion. Just the same, it is my experience that holes in the intraday chart eventually are filled, but they are not filled with the same frequency or intensity that accompanies a daily chart gap.
In summary, we have looked at some problems in defining gaps as "high probability" trades. For the scalper, they are not necessarily high probability because of the erratic timing of an eventual fill. We have defined gaps from two time viewpoints, and seen some of the problems that occur when trying to get a handle on e-mini trading gaps.
In my experience, gap trading is nothing near a high probability trade. To be sure, for e-mini scalping traders, nothing could be farther from the truth. It's true that the market tends to fill gaps, but the timing of a fill can be elusive. It may take hours for the gap to fill, or the fill may take place several days later. For a scalper, the notion that gap trading is a high probability endeavor is a misnomer. That being said, there are days when intra-day gaps are filled almost immediately, which can lead one to think that this e-mini trading behavior is the norm. In my trading, I have found that gaps occasionally fill at the onset of trading, but this trading behavior is hardly the norm. I know of few e-mini traders who take an automatic short on a long gap because the probability does not favor a profitable trade.
Let's take a moment and give the term gap a definition: A gap occurs when the closing e-mini price from the prior day differs from opening of the present day. However, it is important to consider the prior days range in determining what sort of gap you are working with on your chart. Especially if you are a scalper and using minute charts as oppose to hourly or daily charts.
When talking about gaps, most e-mini traders are looking at intraday charts and see a large range between the prior days close and the next day's open. At this point, the cry is sounded for the "high probability" gap trade. This type of gap is an intra-day gap and they occur on an almost daily basis.
However, let's change our charting from the usual scalper's 3-5 minute chart and examine gaps on daily chart. Given the range on a daily chart, the true gap is far less frequent than those found on intraday charts, where gaps are a daily occurrence. This makes the intraday formation somewhat diminished when compared to finding the same formation on a daily chart, and accounts for the reason the market is hesitant to fill in a timely fashion. In truth, when compared to the daily chart, there was no gap at all. In short, we have set up the reasons that intraday trading gaps can be somewhat erratic in filling in a timely fashion. Just the same, it is my experience that holes in the intraday chart eventually are filled, but they are not filled with the same frequency or intensity that accompanies a daily chart gap.
In summary, we have looked at some problems in defining gaps as "high probability" trades. For the scalper, they are not necessarily high probability because of the erratic timing of an eventual fill. We have defined gaps from two time viewpoints, and seen some of the problems that occur when trying to get a handle on e-mini trading gaps.