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Gap strategy with intraday data

Tuesday, October 25, 2016 6:24
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(Before It's News)

The gap fading strategy from previous posts looked all right, but my worry is that Yahoo data does not provide accurate quotes. To check the strategy performance, I've generated a new OHLC dataset based on the Weighted Average Price (wap) of 30-second intraday data. So the opening quote is the wap of first 30 seconds of trading and close is the last 30-second wap. To make sure that my dataset is correct, I have compared it to the yahoo quotes. As shown in the chart below, the difference between the two quotes is ~5ct which seems very reasonable.
B4INREMOTE-aHR0cDovLzQuYnAuYmxvZ3Nwb3QuY29tLy1iWDlVbjFOa1hNdy9VR1RFVmRsVXpSSS9BQUFBQUFBQURacy9ld09USGJSUUlRUS9zMzIwL3ByaWNlX2RpZmZlcmVuY2UucG5n

Now, testing the gap fade strategy on the OHLC data that I generated myself produces much less favorable result:

B4INREMOTE-aHR0cDovLzIuYnAuYmxvZ3Nwb3QuY29tLy1aYU1udFZ3QkVnQS9VR1RFVXBtTlpGSS9BQUFBQUFBQURaby9wNGlmR0FjU0tjQS9zMzIwL2JhY2t0ZXN0X2ludHJhZGF5X2RhdGEucG5n

One look at the pnl chart is enough to say that this strategy would be rubbish.
This brings me to a conclusion that I already was aware of: Yahoo opening quotes are not suitable for strategy backtesting.

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