In a prior post, I had written about the possibility of a rally in bonds, due to commercial activity on the long side of the market. We have had a little rally since that time, and I made one nice longside trade.

Recently, I had another buy signal yesterday, that upon further review of the setup, I did not take. I am a systematic trader, so how could this be? Isn't that a discretionary decision?

Well, yes and no. Trading is a very fluid business. It is important to keep in mind when your black box trading system is firing off signals, the basis behind each one. There are a number of components that can go into a setup to buy or sell. In my view, each one of these needs to be supportive of the same premise.

With this most recent signal, additional research revealed the following. Large gap up opens, with the rest of this setup being the same, had not had good results. This premise is fundamentally consistent, going with gaps just straight up, does not provide an edge in trading.

As a result, when this large gap presented itself, and the history of large gaps on this pattern, was not good, I modified the trade setup for future use. Time will tell if this resulted in a winning trade being missed. However, I have no mental baggage on that. I do know that over time, this setup with a large gag up, cannot be expected to do well. As a result, I have no interest in it.