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Gap Trading Strategy: Mean Reversion Gaps in ThinkOrSwim

mean reversion gaps by adrian manz

Adrian Manz’s Gap Trading Strategy for ThinkOrSwim

This is a mean reversion gap trading strategy that is promoted by Dr. Adrian Manz of Trader Insight (see an example video by Manz here: https://www.youtube.com/watch?v=oudRj-Vcv0Q). A client of mine was interested in developing some tools to trade this strategy on ThinkOrSwim, and so I was able to work on this project and get several tools created to make it really easy. After looking into it more, I found the strategy to be pretty intriguing and very different from how I’ve traded gaps in the past, so I thought it might be worth my readers’ time to take a look at it. This is a complete set, which includes the strategy script itself, along with a custom scanner to find the gaps each day, and indicators and columns to help sort and evaluate the gaps.

What It Is

  1. Scanner: helps you find stocks that are gapping way outside their normal bounds, increasing the probability of an immediate mean reversion move that you can fade.
  2. Watchlist columns: these help you sort through and quickly analyze the best gap trading strategy candidates that are likely to have an immediate mean reversion.
  3. Indicator: helps you find past and current entries on the chart and study how individual stocks perform and respond to this kind of gap trading strategy.
  4. Strategy: Plots entries, exits, and (optionally) stops, on the chart (intraday charts only). The setups are based on the daily chart according to Adrian Manz’s rules, but the actual entries are done on whatever intraday timeframe you prefer to trade. The entry system is my own implementation of the gap trading strategy, which is to enter on the first intraday bar that is outside the standard deviation boundary and also outside of VWAP, and then it takes target once the price retreats back to VWAP. You can use this particular strategy if you like, or manage the trades on your own however you prefer. Adrian Manz uses a more price-action-based entry where he enters on a bar break in the direction of the fade, and takes targets based on support and resistance levels. However, S&R is very hard to code accurately, and I wanted to at least include one mechanical way of implementing the system, so the VWAP target makes sense on a mean reversion strategy like this. And this method seems to work well in my own tests.

Why You Want It

Trading is a game of probability and risk management. This strategy specifically addresses the probability issue, because there is always a reversion to the mean… statistically it’s just going to happen. This strategy helps you find the extreme conditions that are even more likely to result in an immediate mean reversion move.

How It Works

The scanner finds any stocks that meet the trading strategy’s criteria for being likely mean reversion candidates, and then the custom quote watchlist columns help you sort through them quickly and review the charts to see which ones you want to take a position on.

The indicator package helps you visually see previous setups that happened on your charts, as well as today’s signal, by plotting the unique standard deviation lines and signal arrows whenever an entry condition is triggered.

 


$99.99 $49.99 Add to cart

 

[youtube https://youtu.be/SwZGboiCpw0]

 

Adrian Manz's Gap Trading Strategy for ThinkOrSwim
Adrian Manz’s Gap Trading Strategy for ThinkOrSwim
Adrian Manz's Gap Trading Strategy for ThinkOrSwim
Adrian Manz’s Gap Trading Strategy for ThinkOrSwim

$99.99 $49.99 Add to cart

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Weis Wave Volume, Ord-Volume, and Neoclassical Trend Indicator

L.A. Little Neoclassical Trend, David Weis Wave Volume, and Timothy Ord Volume Indicator

Weis Wave Volume, Zig Zag & Ord-Volume Indicator for ThinkOrSwim

The Weis Wave Volume & Ord-Volume indicator combines features similar to L.A. Little’s work on objective trend identification and pivot breakout evaluation using volume, with the work of David Weis and the Weis Wave concept, plus the ideas of Timothy Ord and his Ord-Volume indicator, as well as other traders/authors such as Anna Coulling and of course Richard Wyckoff.

What It Does

The upper indicator plots the classic zigzag waves, swings, and pivots using closing prices, based on either an absolute (price based) reversal, average true range (ATR) multiple reversal, or percentage reversal.

It then sums up all the volume in each “leg” or wave/swing and provides the absolute volume at the pivot high or low (useful for evaluating pivot breakout challenges), the total cumulative volume for the swing/wave/leg (similar to David Weis’ Weis Wave indicator), and the average volume for the swing/wave/leg (similar to Timothy Ord’s Ord-Volume). It can also plot challenges to a prior high that do not happen at a pivot point and plot the absolute volume for that particular bar on the chart (see image — this, again, is useful to comparing the challenge-bar’s volume to the prior pivot it is challenging, to see if it has enough volume to win the challenge).

The lower indicator plots the cumulative, average, and absolute volumes per swing/wave/leg as a lower study similar to an oscillator or volume readout. This is a useful add on for those who don’t want to keep the bubbles on the main chart — they can instead just look below and see what the current wave volume readings are.

Why You Need It

  • Helps you identify trends in a more objective way using L.A. Little’s concepts of confirmed and suspect trends.
  • Helps you evaluate the quality of breakouts more effectively using L.A. Little’s pivot challenge techniques.
  • Brings the popular Weis Wave indicator to ThinkOrSwim in a much more powerful and customizable way.
  • Brings the popular Ord-Volume indicator to ThinkOrSwim — previously completely unavailable.
  • Allows for a deeper, three-dimensional view of volume for Richard Wyckoff analysis enthusiasts.

Features

  • Show/hide labels, chart bubbles, and pivot test bubbles.
  • Choose between absolute (price-based), percentage, or ATR multiple-based reversal calculations for swings.
  • Customizable zig-zag colors.
  • Customizable bubble offset spacing around price chart.
  • Use either upper study, lower study, or both together.
  • Makes a great complement for other Wyckoff-style volume analysis tools such as my Relative Volume indicators.

 

$99.99 $89.99 Add to cart

 

L.A. Little Neoclassical Trend, David Weis Wave Volume, and Timothy Ord Volume Indicator
L.A. Little Neoclassical Trend, David Weis Wave Volume, and Timothy Ord Volume Indicator

 

$99.99 $89.99 Add to cart