Page 326 - THE MARKET WHISPERER

322 PART 10 - Winning Trades

and lowest low of the day’s trading), nor less than 15% of the previous
day’s trading. Reason: a gap that is too large indicates extreme events
which may lead the market into sharp movement, increasing risk. A
too-small gap is not interesting.
• Exit point:
1. Sell at the end of the day’s trading if the gap has not closed; OR
2. Sell when the gap closes.
• Outcomes: during the three years between October 2007 and October
2010, 471 gaps upheld these criteria.

Assuming you had invested $16,000 in each trade, these are the results:
o Maximum profit per trade: $373.9
o Maximum loss per trade: $778
o Average profit: $55.86
o Average loss: $145.01
o Success rate: 81.95%
o Weighted success rate: 63.62%
o Overall profit for three years: $9,236
o Average annual yield: 17.58%

Summary

The method works. The method’s Achilles heel is the 18.05% of cases
where the gap does not close: days when the market opens with a gap
and keeps moving, or as the phenomenon is known, Gap & Go. On rare
days when the market “escapes” us, the average loss is far greater than the
average profit, thus the weighted success rate is lower.