Hi,
Here is an example of the advantage of adjusting TSL when a Gap occurs. I have taken the example of Spot NIFTY to illustrate (I have no Futures data).
NIFTY Gapped up on 15-2-2012 and 17-2-2012. Therefore, there will be two TSL adjustments by considering the two Gap Ups.
The first chart is with normal 3-bar swing TSL without adjusting for Gap Up.The normal TSL on 17-2-2012 (Second Gap Up Day) was 5322.85 which was hit on 27-2-2012
The second chart is with Gap Up adjusted TSL. The TSL on 17-2-2012 (Second Gap Up day) was 5531.30 which was hit on 22-2-2012.
The difference in the two TSLs on 17-2-2012 is 208 points. Thus we gained 208 points by adjusting the TSL on Gap Up days. The two charts below show this clearly.
TSL without Gap Up adjustment:
TSL with Gap Up adustment:
-Anant