Introducing Scott Andrews – The Gap Guy

I met a lot of great people at the Los Angeles Traders Expo – one of the other speakers I got to meet was Scott Andrews, who runs the “Master the Gap.com” website, which provides information and subscription services related to gaps and trading strategies based on historical probabilities of gaps.  The goal is to help traders avoid risky gaps and focus on gaps with the highest historical probability of filling.

Gaps are of particular interest to me, because like most other traders, I will play gap fill trades provided the gap fits my criterion of “small gap” with odds of filling.

I have conducted historical testing using both Excel and TradeStation mainly on the DIA, but after speaking with Scott and attending his presentation at the Expo, I learned there are a myriad of ways to look at gaps and how to quantify then trade them – needless to say, I was amazed!

His presentation “The Ten Patterns Every Gap Trader Should Know” (which is available now to watch for free at the MoneyShow.com) opened my eyes to the world beyond “Large” and “Small” Gaps.  I defined large gaps as “Gaps larger than 1% which often are precursors to Trend Days” and small gaps as “around 0.50% change which have greater odds of filling so initiate a gap fade trade.”

Among other patterns, Scott defined historical probabilities for what happens (in terms of filling) when a gap occurs below yesterday’s low, below today’s S1 or S2 pivot point, following a ‘doji day’ yesterday, after three up days in a row, and many other combination – more than you would think are possible!

While Master the Gap.com is mainly a subscription site, Scott is now writing a free research blog at The Gap Guy.com, which is where I wanted to call your attention.  He has begun releasing videos showing the day’s gap and the strategy used based on historical probabilities of filling and the price structure conditions surrounding the gap.

For example, he share the “Gap Zone Map” which highlights probabilities in terms of yesterday’s open, low, high, and close.

Also, he shares “Gap Fades by Day of Week” in one of his posts.  Did you know that Wednesday and Thursday have the best historical odds of a gap filling successfully?

Take a moment to study his “Stops are Overrated” post, where he demonstrates that the size of stop in relation to the gap yields some interesting yet counter-intuitive research – the larger your stop, the higher your win rate (in terms of successful gap fills) which makes sense, but raising your stop does not translate automatically into profits – that’s because when your larger stop is hit, it zaps away the profit from many smaller winning trades.

Scott is a West Point graduate and helicopter pilot/Army officer.  His quantitative  background and desire for structure/rules led him naturally to the statistics that comprise gap trading and he developed an entire trading strategy around it which has been successful.

Check out Scott at the Gap Guy.com for more information, free research, and videos designed to educate you on the wild world of gaps!

Corey Rosenbloom, CMT