Given some of this week's gaps haven't closed yet (and its hurt me a bit trying to chase them - costly learning week this week in how to deal with gaps that dont close readily), I thought I would start to look at some stats on the gaps to get some more assurance/confidence on how to re-frame my trade strategy to deal with gaps that remain open - taking a leaf from Pietro51's posts summarising the gap closures & non-closures, but extending that somewhat.
I've started with the AU in the following spreadsheet, and so far gone back to May. More detail is lost as I go further back cos I have to start relying on daily data as opposed to 5 min & hourly data which has more detail, but nevertheless the 1st data set is somewhat revealing:
The spreadsheet reveals the following:
1. Out of the last 16 weeks, the average gap size for the AU is 25 pips, and about 8 or 50% are over 20 pips.
2. Excluding this week 88% of the 16 gaps closed within 3 days to a partial level of 88% or more (average of 94% closure).
3. 100% of the 16 gaps closed - although one of them took almost 3 weeks (13/6/2010).
The fact that 100% of them have closed is critical I think if you are to have the confidence to keep the position/trade open. But certainly it seems sensible perhaps to go for at least 80% closure and be done within 3 days.
For my own research I will extend this data set back to the start of the year, and across to the other currency pairs that I look at for gap trades. I'll be happy to share them here as/when I complete them. I also intend to include a column on maximum range taken before the pair returns to close the gap.
