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, including stocks, futures, exchange-traded funds (ETFs) 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 when the price returns to the previous day’s closing price level.
Nearly 40 years ago, as a futures broker in New York, I remember it as if it were 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 someone with 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 on both his personal experience and 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 the difference between the close at 4:15 p.m. Eastern and the opening the next morning at 9:30 a.m. Eastern.
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 an excellent resource and is cited in the book.
Review by
Edward Dobson, President
Traders Press, Inc.
Greenville SC
