Cove Trader

Category: Strategies

Complete trading strategy write-ups: entry rules, exits, and the numbers behind them.

  • Research Log: Turning a 98% Gap-Fill Statistic Into a Tradable System

    This is a full research log — from raw statistic to finished strategy — so you can see exactly how we work and where the traps are. The starting point: on index futures, when the market gaps down at the open, price comes back to fill at least half the gap on the vast majority of sessions. On ES and YM the half-fill rate runs 98–99%. That number is so high it practically begs to be traded. The question is whether a statistic that strong survives contact with stops, targets, and real execution.

    Step 1: Define the trade before looking at results

    A fill statistic is not a strategy. We froze the rules first: on a gap-down open, go long at the opening print, take profit at the half-gap level, and cap risk with a fixed points stop. No re-entries, no discretion. Execution on 5-minute bars with slippage charged both ways. Freezing the rules before peeking prevents the quiet parameter-shopping that inflates most published results.

    Step 2: Sweep, but honestly

    The one free parameter is the stop distance, so we swept it across a grid on ~90 days of data per instrument — the same grid for every market, no per-market tuning beyond the stop itself. Results diverged sharply by instrument:

    • YM: the standout — profit factor near 3 with a wide stop, drawdown contained around $1.3k per contract
    • ES: strong with a tight stop — profit factor around 2.6
    • NQ: workable but weaker, around 1.8 with a mid-size stop
    • GC: dead. Gold’s gaps do not behave like index gaps, and no stop setting rescued it

    That instrument ranking mirrors the underlying fill rates, which is what you want to see: the strategy’s edge tracks the statistic it was built on. When a sweep produces a winner whose edge doesn’t line up with the underlying stat, that winner is usually noise.

    Step 3: Read the geometry honestly

    Notice what this trade is: a high-probability target with a protective stop that loses more per loss than a win makes per win — the tight-target, wide-stop shape we keep warning about. The 98% fill stat is what makes that geometry survivable. But it means the tail scenario — a gap-down that keeps falling all day — is where all the risk lives. The stop is not decoration; it is the entire risk model. Size accordingly.

    What would falsify this

    • A longer window (the 90-day sample is the weakest link — trend regimes flatter long-at-open systems)
    • A cluster of full-gap-and-go days, which concentrate the fat losses
    • Fill rates decaying as more traders lean on the same statistic

    We are treating this one as promising-but-in-sample until it clears a full-year retest. That verdict — and the retest — will get its own post either way. Nothing here is advice; the risk disclaimer applies in full.

  • The Opening Range Breakout That Survived a Year of Slippage

    Most one-minute futures strategies die the moment you charge them for slippage. Backtest a scalp on NQ with perfect fills and it prints money; add a tick of slippage per side and commissions, and the equity curve rolls over. So when a 1-minute opening range breakout kept a profit factor around 1.7 across a full 365-day test with slippage included, it earned a write-up.

    The setup

    The idea combines two of the most-studied session structures: the opening range and the initial balance. The opening range defines the early battle lines; the initial balance (the first hour of regular trading) defines the session’s first real value area. The strategy trades breakouts of that structure on NQ, executing on the 1-minute chart during the morning session.

    • Market: NQ futures (it did not generalize to ES, YM, or GC — more on that below)
    • Timeframe: 1-minute execution
    • Entry: breakout of the opening-range/initial-balance structure in the direction of the break
    • Exits: fixed target and stop, sized so a single loser cannot erase a week of winners

    Why the 365-day gauntlet matters

    A strategy that looks great over 90 days is usually a regime bet in disguise. Index futures spent much of the last year trending, so anything long-biased looks brilliant on a short window. Stretching the test to a full year forces the strategy through chop, pullbacks, and news shocks. Most of our candidates fail exactly here: profit factors of 1.4 to 1.8 on the 90-day window collapse to 0.9 to 1.1 on the year. This one held roughly 1.7.

    The trap to check for: tight target, wide stop

    Any strategy with a small take-profit and a much wider stop shows a high win rate — and hides a fat left tail. The unmodeled risk is the gap-through: price blowing past the stop level on a news candle where the backtest assumes a clean fill. Before trusting a system like this, stress the stop: assume the worst fill inside the stop candle, re-run the numbers, and confirm the edge survives. Also verify there is no lookahead — a breakout signal must only use bars that were closed at decision time.

    Honest caveats

    This is an in-sample result on one instrument. It says NQ’s morning breakouts carried real follow-through over the tested year — it does not promise they will next year. Shorts were the weak side, consistent with everything else we test on NQ in an uptrending regime. If you replicate it, do it in sim first, with your own data feed and your own slippage assumptions. See the risk disclaimer.