Trade the Open with Quantified Strategies Scott Andrews CEO and Co-Founder
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Today s Presentation Agenda Trade the Open with Quantified Strategies Show the only thing that matters on my resume Help you understand the 2 types of opening trades Explain the logic & research I use to trade gaps My #1 Tip For Trading Success (That you won t hear anywhere else) Four ways you can learn more We make learning, fun. CAMERA ONE STANDBY
Scott Andrews Bio Full-time Trader for Over a Decade Educated Thousands of Traders Since 2008 Took a Company Public in 1999 (SQI) B.S. from West Point, MBA from UNC Former Army Officer & Helicopter Pilot Scott Andrews CEO and Co-Founder, Inc.
Scott Andrews Bio Full-time Trader for Over 12 Years Educated Thousands of Traders Since 2008 Took a Company Public in 1999 (SQI) B.S. from West Point, MBA from UNC Former Army Officer & Helicopter Pilot Scott Andrews CEO and Co-Founder, Inc.
Equity Curve 9/1/2007-9/1/2016 The Only Thing That Should Matter To You On My Résumé Scott Andrews Equity Curve for over 2,000 live money, futures trades since he started educating traders in September of 2007
The Basics of Trading the Open 1) Fade The Gap 2) Follow The Gap GAP BASICS
Scott, What is a Gap? A gap is the difference between a security's opening price and its prior day (session) closing price. The difference is shown visually on a price chart as a vertical space or a gap. GAP BASICS
Opening Gap Example Prior day s Closing Price at 4:15 PM ET Next day s Opening Price at 9:30 AM ET Figure 1. Opening Up Gap Example $ES_F, 5-Min Chart GAP BASICS
Option #1: Fade the Opening Gap Sell at the Prior Close Trade in the OPPOSITE direction of the opening gap which means: If the gap is UP, then SHORT. If the gap is DOWN, then BUY. Buy at the Open Figure 2. Strategy: Fade the Opening Gap, 5-Min Chart OPENING GAP FADES
Why Opening Gap Fades Work Economic and geopolitical events cause Futures markets to gap overnight 65% to 70% of all Opening Gaps in equity markets fill the same day Gap Fades take advantage of emotional, news-driven traders Gap Fades trade in the same direction as institutions and funds who rarely pay retail market prices at the open Scott Andrews Trading Tip Opening Gap Fades take advantage of the Mean Reverting Bias of most large, highly liquid markets such as Indices, large cap stocks and other highly liquid markets. OPENING GAP FADES
Option #2: Follow the Opening Gap Sell at the End of Day or pre-determined Target Buy the Open Trade in the SAME direction of the opening gap, which means: (prior close) If the gap is UP, then BUY. If the gap is DOWN, then SHORT. Figure 3. Strategy: Follow the Opening Gap, 5-Min Chart, ES
Scott, if a gap has a 70% probability of filling Why would you trade against it? (prior close) Because many opening gaps have a high probability of: a) Filling and then reversing, b) Trending after the open then reversing and filling, or c) Trending and never filling Figure 4. 5 min ES: Filling the gap, then reversing.
Gap Trading Statistics Since 2009 Fade the Gap Follow the Gap (Target: Gap Fill, with End of Day Stop) (Target: 30% of 5 Day ATR, with End of Day Stop) Since 2009, Fading the Gap and Following the Gap have shown Comparable historical performance
Stop and Target Placement STOPS AND TARGETS
Stops and Target Summary STOPS Bigger stops generally increase the Win Rate Tighter stops generally decrease the Win Rate 30% of the 5-day Average True Range (ATR) is good for Fades and Follows for most markets TARGETS Scott Andrews Trading Tip There is no right or wrong choice. It is a matter of the desired Win Rate. Trade SELECTION is your key to maximizing profits. Gap Fade: Prior session close has high win rate Gap Follows: End of day is good for profits Percentages up to 40% of the ATR works well for both Fades and Follows STOPS AND TARGETS
Gap Trade Selection GAP TRADE SELECTION
Gap Size is a Good Selection Criteria Scott Andrews Trading Tip Fades: Work best if <40% of ATR Follows: Work best if >40% of ATR Figure 5. Historical Gap Fade Results as a Percent of 5 Day ATR (Average True Range) GAP TRADE SELECTION
Day of the Week is a Good Trade Selection Criteria Number of Gaps Fade Win % Long Fade Win % Short Fade Win % Monday 452 65% 67% 63% Tuesday 455 66% 71% 62% Wednesday 452 70% 74% 67% Thursday 449 67% 72% 64% Friday 464 71% 69% 72% Figure 6. Day of the Week Results for Fading the Gap. GAP TRADE SELECTION
IQ Trade Selection Process Trend Momentum Volatility Robust quantitative analysis of the historical performance of similar gaps during similar market conditions. Trade Expectancy OB/OS Seasonal This is called: Ensemble Forecasting.
Hypothetical $40k Portfolio (4 Strategies: 2 Fades & 2 Follows : S&P 500 Futures & Bonds) Figure 7. Hypothetical historical performance for $40k Fade & Follow Portfolio. Commissions and slippage estimated and included. Strategies include Camera Ready, Good Dog, Double Check and Sister Pearl.
iq Strategies are Robust Auto- adapt to changing market conditions & own performance Are NOT curve fit i.e. based on optimizing targets, stops, etc. Work across multiple markets Available in limited quantities
Final Thoughts... GAP TRADE SELECTION
Why Are You Trading? Entertainment? - or - Financial Goals?
Which Do the Serious Gamblers Play? Slots? - or - Blackjack?
What Type of Strategy Should You Trade? Chart-Based Edge Quantified Edge Discretionary rules Strict, non-discretionary rules No back-tested results Quantified results available No audited performance Verified by live trading and 3rd party Historical edge promoted, but NOT proven, nor quantified Historical edge is known and proven
Why Risk It? Why risk your time and hard earned capital on any technique that can not prove or verify its mathematical edge?
Trust, But Verify... 3+ years of verifiable, live trading record? Are daily results logged accurately? Reference list consisting of multi - year paying subscribers?
IQ Quantified Strategies are Available Via: IQ Trading Platform IQ Alerts Identify and avoid high risk scenarios Identify intraday directional biases Trade with History on Your Side Decision Support IQ Autotrading Know when an IQ Strategy identifies Autotrade IQ s quantified strategies a historically attractive trade for Manual Execution using IQ s Autotrading Apps or IQ s White Glove Service Trade Signals Strategy Execution
3 Ways to Learn More Try iq Tra de A lert FRE s E TR IAL Kiosk: Stop by and see us Presentation: Learn about IQ Strategies & Alerts at 8:00 AM tomorrow Online: Go to www..com/expo
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Additional slides not included in the live presentation are below.
Hypothetical $100k Portfolio (6 Fades & 4 Follows: S&P 500 Futures & Bonds) Figure 7. Hypothetical historical performance for $100k Fade & Follow Portfolio
IQ Solution Guide IQ Platform IQ Alerts IQ Autotrading Manual or Auto Execution Key Advantage Best Suited For Manual Unlimited trading opportunities & contracts Experienced traders Manual Real edges with minimal effort or experience required Traders looking for simple strategies to execute Not tied to desk Busy traders & active investors Auto # of Hands None!
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Which Black Jack Table? Stocks Futures Index futures provide more leverage and are highly liquid, more tax efficient, and easier for shorting. Email Tim@investiquant.com for free video on Basics of Futures.