fingergift.blogg.se

As a result, my original strategy targeted large down gaps. Most buy-on-gap strategies utilize a rule to limit the size of the down gap, but it turns out that I inadvertently omitted such a rule in my original backtest. If a sell-on-gap strategy works better than a buy-on-gap strategy, why is the buy-on-gap strategy so well-known? This suggests that some mean reversion occurs immediately after the open before the stock continues falling. Entering positions 5-10 minutes after the open works better than entering immediately after the open.Perhaps this is because small-cap stocks are more subject to liquidity shocks, which tend to mean-revert. The strategy works better on large-cap stocks than on small-cap stocks.

From 2014-2020, the Sharpe ratio is 1.30 and the annual return is 10%:Įxperimenting with parameters, I make two observations: I reverse the rules and indeed find a profitable strategy. Why not simply reverse the sign of the trade and go short instead of long? The performance of the buy-on-gap strategy is so bad, it suggests a good strategy. I buy the stocks 1 minute after the open and hold until the close, resulting in the following equity curve: Sell the gap Gapped_down = today_opens < (prior_lows - stds)Īssets_to_buy = context.candidates # find stocks that opened sufficiently below the prior day's low Window_length= 20, inputs=)Īre_common_stocks = stock_(Īre_liquid = AverageDollarVolume(window_length= 30).percentile_between( 90, 100)Īre_above_mavg = > mavgįor the stocks that pass the screen, I use intraday data to identify which stocks gapped down at least 1 standard deviation below the prior day's low: today_opens = data.current(, 'open')

The strategy typically targets stocks in an uptrend, expecting that traders will buy the dip. The selling pressure immediately exhausts itself, however, leading the stock to recover through the remainder of the session. The reasoning behind the strategy is that bad news causes traders to enter sell orders overnight which execute in tandem at the open, causing a temporary liquidity shock which drives down the opening price. Buy the gap?īuying stocks that gap down is a common trading strategy. This post uses Zipline to explore down gaps and finds a profitable strategy based on selling, not buying, the gap. What happens when strong stocks gap down at the open? A well-known trading strategy is to buy the gap, expecting mean reversion.