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The Gap Up LE (Long Entry) and Gap Down SE (Short Entry) strategies are “breakout” tools designed to trade sudden price jumps that occur between the close of one bar and the open of the next. These gaps often represent high conviction moves driven by news or overnight sentiment.
How the Logic Works
Both strategies identify “Full Gaps,” meaning the current price range has completely cleared the previous bar’s range.
1. Gap Up LE (Long Entry)
- The Condition: It checks if the current bar’s Low is strictly higher than the previous bar’s High.
- The Entry Signal: A Buy Market order is generated.
- The Goal: To capture bullish momentum, assuming that a price jump this significant indicates strong buying pressure that will continue upward.
2. Gap Down SE (Short Entry)
- The Condition: It checks if the current bar’s High is strictly lower than the previous bar’s Low.
- The Entry Signal: A Sell Short Market order is generated.
- The Goal: To capture bearish momentum, assuming the downward jump indicates a “flush” of sellers or a negative catalyst that will drive prices further down.
Key Characteristics
- Timing: The entry occurs at the open of the next bar immediately after the gap is confirmed.
- No Inputs: These standard built-in strategies typically have no configurable inputs. They rely on the fixed mathematical definition of a full price gap.
- Order Labels: In your TradeStation Strategy Performance Report, these trades are labeled as “GapUp” or “GapDn”.
Strategic Considerations
- “Filling the Gap”: A common risk is that the market may move to “fill” the empty space (retracing to the previous bar’s range) shortly after the entry.
- Volatility: Because gaps often happen during high-impact events (like earnings), slippage can be higher than normal on these entries.
- System Building: Traders often pair these with an automated Trailing Stop to lock in profits if the gap move is short-lived.
