A "Gap down Reversal" is when the current days candle, opens, below the prior days close, and "finishes up" on the day with the close greater than the open. This type of price action can provide traders with favorable entry points to trade long, as anyone who was short the prior day, can get squeezed or panic out of the trade as they would see profits erode quickly from the gap down at the open.
Strategy results are shown on SHOP with 10k starting capital and 10k per trade. The strategy enters at next days close after the gap down reversal fires off, and a 5% trailing stop order is also executed. This is important to understand when experimenting with different trailing stops on different symbols and observing results to find the most viable strategy. The discretionary trader may choose to enter at the close, or at the next days open, so understand results are not calculated for those entry points.
You also may alter the start date of the strategy, so you can include, or exclude certain dates.
Experiment with different stops and symbols! More volatile symbols most likely will need looser stops and Vice Versa. Concentrate on symbols in up trends, as "the dips" usually get consistently bought in these names, but hard reversals in downtrends can happen as well.
Any questions/concerns please let me know and happy trading.
Release Notes
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1. Cleaned up the code
2. **** Would like to clarify and rectify an error in description, the strategy enters at next day's open, NOT, next days close, after the gap down reversal occurs.*****
Release Notes
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I Updated the previous strategy to only take trades when the previous candle is red, and the next day's open is below the previous days low, and that candle closes green. The strategy will take the trade after that condition is met on the next day. Trailing stop loss % is adjustable and should be changed for different names which have different levels of volatility. I also changed the trailing stop loss to calculate based on the open price, not the close price.
Hi Rolando, looking forward to testing this out on an idea I published yesterday. QDEL closed the day with a bullish hammer candle. I'm assuming I should see a new entry signal at market open. What I'm not clear on is what are the numbers above and below EL and Stop Loss? For example +10 and -10 on your chart.
bruitdefond
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Great idea. have been playing around with what the opposite looks like. Gap ups with a next day red candle. Maybe not a short entries but as a good take profit spot?
eladlevi
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Hi Rolando,
Very nice work.
few q's:
1. Why did you remove the short side from the script? (seems that it was there.. can you add it again and have an option to select it?)
2. I think that you can get even better odds if you only enter to such e.g. long trade, if a stock is in long term up trend - you can try to get this by any trend indicator (ema-200 eg). what do you think?