Quick Scans: Trading the Rebound Gap by John Sweeney
With the proliferation of trading systems
on heavyweight hardware and software
has come the decline of simple
systems you can use with just a pencil.
With no public evidence that rocket
science has changed the investment
world, it might be profitable to look at
something you can actually understand,
such as Trading the Rebound Gap.
A rebound gap is formed when a
tradable opens beyond the previous
day’s range (that is, higher/lower than
the previous day’s high/low), then closes
within the previous day’s range. The
gap evinces that the market is moving
aggressively at the opening, then being
pulled up short and retreating back into
the previous day’s price range. It’s a
curtailment of speculative enthusiasm.
Exploiting this psychological phenomenon
is the subject of Richard Bearse’s