Saturday, June 23, 2012
Gap Filling on the ES
In looking for reasons why the Alligator strategy is in a slump I've reviewed long term market behavior for gap fills. What it shows is that the amount of potential gain from fading a gap (selling an up gap at the open or buying a down gap at the open) is dropped to historically low levels in 2012. This is a little odd, because there has been a reasonable amount of volatility in the market otherwise. The Alligator system fades the gap almost every day, but because market behavior has changed, opportunities for successful gap fill trades have been curtailed. There is certainly no way to predict whether this is the new norm, but it seems unlikely to me.The number is moving up slightly for the past few months, a trend which I would like to see continue.