Profile image
By Quantum Blog (Reporter)
Contributor profile | More stories
Story Views

Last Hour:
Last 24 Hours:

Gap strategy revisited

Tuesday, October 25, 2016 6:24
% of readers think this story is Fact. Add your two cents.
In the beginning of 2011 I’ve backtested a fade gap strategy. There seemed to be an edge to fading gaps, so let’s take a look how this strategy performed since then. Once again strategy rules:

  • Trade only gaps larger than 0.1 %
  • Enter on the open (short for Up gap and long for Down gap). Profit target is set at previous day close.
  • If profit target was not reached during the day, exit on close

This time I corrected the data for dividends.


The results out-of-sample are pretty good, the strategy was doing well in 2011-2012.
A more realistic case is including transaction cost of about 0.03% , which is approximately 3ct for SPY. 1ct is IB commission, another two are needed for crossing the bid-ask spread.


The Sharpe ratio for these strategies is still not solid enough for me to actually put my money on it.

buyAndHold      0.189366
fadeUpGaps      0.508378
fadeDownGaps    0.595578
fadeAllGaps     0.783124

… and I still keep wondering, how can there be an edge while there seems to be no significant correlation between the night gap and the day session change.


We encourage you to Share our Reports, Analyses, Breaking News and Videos. Simply Click your Favorite Social Media Button and Share.

Report abuse


Your Comments
Question   Razz  Sad   Evil  Exclaim  Smile  Redface  Biggrin  Surprised  Eek   Confused   Cool  LOL   Mad   Twisted  Rolleyes   Wink  Idea  Arrow  Neutral  Cry   Mr. Green

Top Stories
Recent Stories



Top Global

Top Alternative



Email this story
Email this story

If you really want to ban this commenter, please write down the reason:

If you really want to disable all recommended stories, click on OK button. After that, you will be redirect to your options page.