There are >10000 tradable equities in the US markets. How big is your trading universe for "bought every gap up at the open"? And how do you divide your 100k among all gap-up stocks?
what are you using for backtesting? focusing on just a few stocks may give you misleading results. one common problem i am aware of is survivalship bias. what happens if you hold buy the stocks from you list when there is not gap up and wait for 12% gain or for 5 days?
Tip: Check short interest and also how far from 52-week highs the stock is when it gaps up. High short interest means short squeeze could go on for quite a while; stocks that are still trading at a decent discount to their 52-week highs when they gap up also tend to continue the move up for quite a while. Finally, fundamentally good news will keep the price a 'risin often way further than you may think is reasonable (take a peek at ADY after its recent gap up).
i know in the wide universe of stocks, the 24 that i studied is not much, however i belive like in most things in the market, there are predicitable patterns that show up if a large enough sample is taken. think of it like insurance companies..they use the law of large numbers to their advantage. Every month i'll be adding new gaps, and re-doing the analysis to refine the probabilities of a gap following a predicted path. Anyone that read my text, knows that there's a 58.3% chance that price will make a higher high the day after the gap, and a 62.5% chance that price will close higher the day after as well. knowing just that much i can buy the gap, and sell the next day at the close and make a profit if I wanted to scalp it.
added 11 more gaps to my study (35 total). These take time to evolve, and time to study, so I hope others appreciate this. I'm giving away a winning system here. ------ the new re-calculated numbers for july 28th 2009 AND june 16th (gap ups) 1) % chance price will make (see below) the next day. Higher high --> 51.65% Lower low --> 17.3% Close higher than gaps close --> 67.2% Close Lower than gaps close --> 32.25% 2) after 5 days, what % chance will price close higher, or lower? higher --> 71.7% lower --> 27.5% 3) Percent of gaps filled (within about 30 days) filled --> 23.9% not filled --> 75.5% 4) how many days on average does it take before the gaps fills days --> 16.8 ( about 9 to 24 days) 5) how many days does it take to close below the low of the gap bar on average? [17 gaps (49.9%) followed this criteria ] days --> 10 days 6) by what % does price continue up before it reverses? rally up --> (of the 11 gaps in the last study, 2 failed to rally) 10.4% is average.
I looked into similar statistics on more of an intraday basis, but I have a question. Do you factor in futures behavior on each day of calculation in your studies?
What I've noticed through observation is that since the market has been in a steady uptrend over the past few months, gaps up tend to be much stronger at continuing to move up rather than closing any part of the gap. Back when the market was in a steady downtrend (Jan-Mar), fading gaps up was a more predictable play, as long as the stock wasn't gapping up after losing a massive amount of its value over the preceding months.
Gaps do not exist. Simply, 'slide' the market (up or down) and 'match' the previous trading day close (16:15 Eastern time) with the current day open (09:30 Eastern Time), and carry on. - Spydertrader