Description
The GapReversalLE is a gap-based long-entry strategy developed by Ken Calhoun. As discussed in his article “Trading Gap Reversals”, the strategy is to be applied to 2-day 1-minute charts for stocks priced between $20 and $70. To recognize such stocks, use thinkorswim Stock Hacker.
While trading the gaps is a base for many technical indicators, this strategy is about the proportions of such a gap. On certain intraday charts, sufficient gaps might indicate that the stock is currently being overbought or oversold, which may result in a reversal. By default, the GapReversalLE adds a simulated buy order if the price has risen by 50 cents after a gap of 10% or more from the previous day’s low. Both numbers are customizable via input parameters.
Since the strategy is long entry only, you might want to use other strategies for exits, e.g., TrailingStopLX.
Input Parameters
gap
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Defines the minimum gap (in percent) from the previous day's low. |
offset
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Defines the minimum amount by which the price should rise after the gap. |
Further Reading
1. "Trading Gap Reversals" by Ken Calhoun. Technical Analysis of Stocks & Commodities, April 2016.Backtesting is the evaluation of a particular trading strategy using historical data. Results presented are hypothetical, and there is no guarantee that the same strategy implemented today would produce similar results.
Technical analysis is not recommended as a sole means of investment research.
For educational purposes only. Not a recommendation of a specific security or investment strategy.