Interesting Gap Play | Move the Markets

Guest Post: Interesting Gap Play

Posted on June 3rd, 2007
Written by Mr. White Folks
Posted in: N/A (old archives)

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

I’ve been experimenting with different ways to use the PnF charts. With this particular setup (5/22), you have a gap down on the 5′ chart. A common strategy is to wait for the gap to fill, and then go short. As you can see from the 5′ view, it never filled. However, look at what happened on the PnF chart. It rallied exactly to the downtrend line (45 degree), and reversed.

Both charts are highlighted by ‘1′ to show the exact point of reference. As you can see from the regular candlestick setup, oil printed a bearish engulfing bar on heavy volume which would have alerted “smart” traders to a possible short entry. Since I’m not that smart, I like the simple way which was presented on the trusty PnF chart.

What I am finding particularly useful about the point and figure setups is the ability to limit my risk dramatically. I find myself straying from the textbook entries, and looking for what I call creative strategies. Open the left side of your brain, and see what happens.

Comments

john

prospectus: exactly...use the candlesticks to confirm setups, and the PnF to provide a low risk entry...depending on my fill price, i try to keep my stops between 5 and 10 cents

btw, on stocks u can actually wait for the reversal, and position size accordingly...however, for futures - especially oil - it doesn't take much to rack up losses...so i try to anticipate my entry using both types of charts
Prospectus

Another point in the setup's favor is that you had the swing low of the prior day at $66.60 that could offer potential resistance at your entry point today.
Prospectus

So your stop on this one would be $66.65, going short at the trendline at $66.60? Sorry for being a bit of a thickie, but I always want to clarify things...
john

btw, the 45 trendline is the perfect place for the stop...somtimes it violates it, but i'm operating under the assumption that i'm not going to nail the trades with a great win percentage either way, so this puts the odds back in my favor
john

short into the strength with a tight stop...i'm straying away from the normal buy and sell signals since the stops are so wide...i'm trying to limit my risk, and hopefully, increase my R:R
Prospectus

Interesting idea. You wouldn't get a sell signal from the O's column until $66.50, and the stop would need to be $66.65, IMO. Unless you shorted into the strength. Is that what you would do?

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© 2010 Richard Todd. I am not a financial advisor, and nothing on the site should be considered investment advice or actionable recommendations. I'm just an individual, saying what I think, and sharing my experiences.