We then close the trade (about half an hour later) when price moves back above yesterday’s low, filling the gap: We therefore go long on the next 1-minute bar. You can see that ADBE opens >1% below the previous day low on May 18th. The following chart shows the kind of gap fill trade we are looking for with this strategy. If the gap doesn’t fill, sell on the second to last bar (at 15:59).If the stock closes above yesterday’s low, sell on the open of the next 1-min bar.If the stock opens >1% lower than yesterday’s low, buy on open of the next 1-min bar (at 09:31).If the gap doesn’t fill sell at market close.Sell if high is at least $0.05 above yesterday’s low (gap is filled).Buy on open when the open is >1% lower than yesterday’s low.First I will test on end of day data from Norgate Premium and then on 1-minute intraday data from DTN IQFeed.īecause we are using different data sets we will need slightly different rules but the core of the strategy will be the same. To illustrate this problem, I am going to test the fill the gap strategy on two sets of data.
Gap strategies can be backtested with end-of-day (EOD) data but there are some problems with this approach which I have talked about previously. It can therefore be a good opportunity to buy the stock and wait for the gap to fill. When a stock opens on a significant gap down, there is an imbalance caused by too many sellers. Therefore, when a stock opens on a gap up or a gap down it shows an imbalance between buyers and sellers. Sometimes, depending on news flow or market events, there is significantly more buying or selling volume. This is intended to improve liquidity and make the opening of the market as orderly as possible. Pre-market buy and sell orders are matched by designated market makers (DMMs) and special liquidity providers. US stock markets open each day with an auction method. Gaps – What Are They And Why Do They Happen? T he type of data used for backtesting (whether it is end-of-day or intraday) drastically impacts backtest findings. I find mixed results after transaction costs.Īn important caveat for systematic traders. In this post I test the strategy on 20 Nasdaq stocks between 2008-2018. However, there usually isn’t much evidence to support those claims. Many bloggers have written about how good this strategy is.
By Joe Marwood Amibroker Intraday Stocks Strategies/ Systems February 22, 2018įilling the gap is a popular strategy where you buy a stock when it gaps down in the morning and then wait for it to fill the gap.