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Beat the Street: A Trader's Guide to Consistently Scoring in the Markets by Adrian Manz

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Chapter 12. Opening-Gap Reversals

TRADING THE OPEN can make for a very rough ride. Things can get particularly hairy when there is a significant gap due to erratic behaviour in the overnight futures markets. The opening-gap reversal is an intraday pattern that uses basic statistics and five-minute bars to find a high-probability turning point after an overreaction opening. It is easiest to execute as a long strategy from a sharp gap-down open, but it works equally well as a short sale. The only caveat is that if there are a lot of traders shorting the move, you sometimes have trouble getting quick fills.

The opening-gap reversal relies on some basic principles of statistics to derive a set-up. For those of you who shudder at the very thought ...

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