Gaps are created when a stock or ETF opens significantly higher or lower than it closed the previous day. Traders have developed a variety of rules for trading gaps but few have tested their rules. Stock Gap Trading Strategies that Work and ETF Gap Trading Strategies that Work provide quantified results and back tested results for gap trading.
The former Head of Trading at Fidelity Capital Markets, Kevin Haggerty, has said, “If I could only trade one strategy, it would be early morning gaps.” Stock Gap Trading Strategies that Work and ETF Gap Trading Strategies that Work provide detailed rules on how you can trade the early morning gaps Haggerty finds so appealing.
These guidebooks include dozens of short-term set-ups which have been correct greater than 68% of the time (a very high win percentage) when applied to individual stocks. The average gain per trade (this includes all winning and losing trades) has averaged up to 6.16% per trade since 2001!
ETFs provide even stronger results. In ETF Gap Trading Strategies that Work, we provide the complete rules for trading non-leveraged and leveraged ETFs. Some of the test results are summarized below.
Leveraged ETFs offer greater potential returns but have a greater degree of risk.
In recent weeks, market volatility has increased. When volatility is high, we often see a large number of gaps. With volatility likely to continue, gap trading could be among the best trading opportunities available in the current market.