I Trading Gaps

Although gaps don't occur often, they are very amenable to SSF trading. SSF gap trades are usually day trades, although you can hold until the next day. Take your time and study the gap trades. You may like what you see, particularly if you're a short-term trader. The rules for trading gaps in SSFs are simple. They are as follows:

FIGURE 11.6 Gap Buy Signals on Days A and B

•  If an SSF opens above the high of the previous day by at least 5
percent of the previous daily trading range (i.e., high - low of
day), then sell short on a penetration back below the high of
the previous day.

•  Use a risk management or dollar stop loss.

•  Exit the trade at the end of the day.

•  Use a trailing stop loss intraday if the position moves strongly
in your favor.

•  Consider trading multiple contracts and exiting on a scale up.

•  If an SSF contract opens on a gap below the low of the previous day
by 5 percent or more of the previous daily trading range, then
sell short on a penetration back above the low of the previous
day.

•  Use a risk management or dollar stop loss.

•  Exit the trade at the end of the day.

•  Use a trailing stop loss intraday if the position moves strongly
in your favor.

•  Consider trading multiple contracts and exiting on a scale up.

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