It’s nice to see the market is returning to the classic gap fade pattern working. February has been a rough month for those who love to Fade the Gap according to classical trading, yet January was a very rewarding month for this strategy.

Let’s look at the recent action, including a bonus chart:

Although both gaps faded, neither faded according to the ideal strategy.

Yesterday’s gap experienced a period of consolidation before breaking sharply higher. My guess is that just before noon, if you entered a classic gap-fade trade, then you exited due to a time stop component just before the large volatility move up to your target, which was extremely frustrating.

Today’s gap experienced a bit of further upside in price before the gap fade trade achieved its goal. The stop wasn’t triggered, unless you were an ultra-conservative trader, but most likely you gave price just a little leeway this morning to see the first few minutes of action, and actually may have gotten a more favorable price for execution.

I can’t wait to run the statistics for February and see the percentage of days with an overnight gap, and then the percentages of times the gap closed according to the classical gap fade technique. My guess is that the success rate of the classic technique will be under 50%, after being 70% for January.

As always, when you finally discover the key, the market immediately changes the lock!