gap study

Email received:

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I found your study quite interesting and challenging. I am doing pretty much the same things applied to stocks and commodities with similar results. I notice that the positive bias of gaps is true for ES and NQ, but not for some of the commodities (e.g. silver or crude oil). Especially in the case of oil it is strange, because as the uptrend has been very strong and long, you would expect to see more gaps up. There must be market structural reasons behind it. Also the close in the direction of the open is not verified for some commodities and stocks. I wonder if this can still be traded because of different market intrinsic characteristics or it is a product of randomness without statistics significance.

Can you please give me the details of the sw package you are using for testing data?

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Thanks for the comments.

There are 2 gap studies that I've worked on. The first is complete and can be found here:
http://www.deltat1.com/gapfill/
For this gap study I mostly used excel to analyze the daily data that I had to work with. Some of the more complex data sets were generated by using a custom written C# application that I've been working on for the last 4 years. There are some more details about that "Trade Engine" program here:
http://www.deltat1.com/TradeEngine/howitworks.htm

The second gap study that I'm working on is incomplete but what I have done is published here:
http://www.deltat1.com/Education/GapFade/

The second gap study uses results generated by the Trade Engine almost exlusively and uses a far larger data set and also uses 1 minute data which allows far more precision for money management before and after the trade is entered and allows for more accurate results.

One of the problems with the original study was that if both the stop and the target were hit then it was impossible to tell which was hit first because the data was day data and so the study erred on the side of caution and assumed that the stop and not the target was hit. The good news about this was that the strategy was still profitable even with this adverse assumption.

I hope that this helps you.