Trading the “Limit Down” and “Limit Up” Gaps on #DOW

We’ve seen three days, this past week, where futures trading on the US indices, prior to NYSE open, was stopped due to the huge movements in price.  For those not in the know, the breaks (“Limit Up Limit Down” - LULD) are applied when trading gets out of hand   The US Securities and Exchange Commission (SEC) set the rules to prevent a recurrence of the flash-crash that occurred on 6th May 2010, when the S&P, DOW and NASD collapsed in a matter of minutes; the DOW falling nearly 1,000 points (which doesn't seem like much after this week's action).  You can read about the rules here
: https://www.sec.gov/files/dera_wp_the_effect_of_amendment_10_of_the_luld_plan.pdf

​In pre-market-open, we had the “Limit Down” rule applied on Monday and Thursday and the “Limit Up” rule applied on Friday.  That can be a worrying time if you have trades open when the price feed just stops. However, those trading pauses provide great opportunities for us traders.  A substantial gap was formed, on each occasion, from when trading ceased to when it resumed when the markets opened. Anyone who knows me knows how much I love gaps for trading - that's why they are coded into eWavesHarmonics (eWH) ​.  They often tell us when a wave has ended, when a new one starts and where there is momentum in a wave-in-progress; the latter one allowing us to predict where price could go to.  Gaps don’t always get filled, at least in the short term, but all three of this week’s LULD gaps did.
​
Monday opened with a massive gap down, nearly 1000 points, as you can see.  That didn’t leave much room for further trading before the NYSE open (NEO). When price reached about 1,250 points down from the week open, the selling was stopped.  By the time the markets opened, price had fallen a further 600 points or so but price instantly went up to fill the gap, as an ABC correction (shown, using the ABC123 indi) ..

​
​Thursday’s gap took a little while to be filled: price had to get to the eWH TZ2 and measuring gap projection before it felt the need to move back up and close the gap, half an hour after the London Close.  Notice how price corrected to the eWH 4 - that happens a lot ...

​​Friday’s Limit Up gap gave the quickest gap-trading opportunity of the week, and here's how some of us did in the Skype Trading Group …

That was a 5R trade for over 200 points, in one minute.  With the benefit of hindsight, we would have got 13R had we just switched on the ATM T-Candle option – but hey, who’s complaining about a 5R trade.

One week of LULD gaps that could have been easily traded for some terrific returns.  I wouldn’t be surprised to see more such gaps, in the coming week(s), so keep an eye open for them.

If you haven’t already done it, you might like to check out the Trader Training Course to learn more about the different types of gaps and how they can be used to good advantage for your trading. The week open gaps have proved particularly useful for predicting where price would go to, along with other such momentum gaps during the week - just priceless.