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The size of the opening gap (difference between yesterday's close and
today's open) is often a good clue as to which direction the market is
going to trend in the initial part of morning trade (and in some
cases, the rest of the day).
A rough rule-of-thumb that I use for determining whether or not a
T-Bond day trading position should be taken in the same, or the
opposite, direction as the opening gap pegs 8 ticks as the cutoff
point. Gaps less than 8 ticks indicate a tendency to close (revert
back to yesterday's closing price). Gaps greater than 8 ticks indicate
a high potential for follow-through (price will trend in the same
direction as the gap.) Whether or not the trade is actually taken in
the indicated direction is dependent on other characteristics of price
behavior.
I would think that this sort of thing takes place in other markets as
well. For the S&P futures traders out there, is this a common
practice? If so, what kind of gap parameters do S&P futures traders
use to determine the most likely direction in early morning trade?
Any input would be appreciated.
Bob Hunt
E-Mail: RHunt.066@xxxxxxxxxxxxxxxx
Web Site: http://home.att.net/~rhunt.066
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