Is gap fading dead?

Fading the opening gaps has been one of the more reliable tendencies in the market since I began trading, at least electronically 12 years ago.

The premise is that there is overemotional exuberance on the short term, and in order to relieve that and revert back to the mean, the gap fades.

The last few weeks have been torture for gap faders that either fade immediately off of the opening, or wait for the antiquated techniques preached by the super gurus, who have never had an original thought in what they swindle people with, but claim they do. They use old methods that by the time they claim them for their own, they don't work any longer.

I like to fade the gap when possible, but I rarely fade right off the open. Sometimes that will cost me the most advantageous entry, other times it will keep me out of trouble. I usually wait for a move in the direction of the gap that moves into support or resistance (depending on the gap's direction) and then lean into that. I'll get lucky sometimes (yes it's luck) and pick the exact high or low, but as long as I follow the plan for the fade entry I don't mind taking a bit of heat.

The action these last few weeks has been brutal as I mentioned above, but we seem to go through these periods every so often, so rather than complain about it (and no one is complaining more than me, believe that!) you have to keep your powder dry and look for better opportunities. Gap fading isn't dead, but it may be on an early holiday.

tiny