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The Gap Reversal strategy was first described by trader David Pieper in Traders magazine. It is a swing trading strategy. The strategy is usually applied to stocks and futures in a trend.
|Suitable for||: Market indices (DAX, DOW, CAC...)
: Commodities (oil, gold...)
|Instruments||: Futures, CFD and stocks|
|Trading type||: Swing trading|
|Trading tempo||: Low|
|Using NanoTrader Full||: Manual or (semi-)automated|
The Gap Reversal strategy is based on a precise chart pattern. As the name indicates, this chart pattern includes a gap. The strategy is applied on a 1-day chart.
The strategy only generates buy signals. The signals are filtered by means of a moving average before they can be accepted.
The following chart pattern must occur:
But not every pattern occurrence is a buy signal. The Gap Reversal strategy applies a filter based on the 250-day moving average. Only if the market price is above this moving average, a signal is validated and accepted.
The Gap Reversal strategy uses a trailing stop order and a target. Both are based on the ATR. The initial return/risk ratio is set to 1.
The Gap Reversal signals appear to be of good quality but they are relatively rare. Hence the most efficient way to detect them is to use the screener.
The chart pattern used in this strategy is also available by itself in the trading platform in the WHS Patterns folder. The platform also contain a ready-to-use screener based on the chart pattern.
Using the NanoTrader Full follow these steps: