Thursday, May 8, 2008

More on Gap Bands

A few nights ago I looked at upside gaps outside of Bollinger Bands for SPY. Tonight I will show them along with downside gaps below Bollinger Bands. I am using the standard 20ma and 2 standard deviations bands for the study. As was pointed out, the band levels are fixed until the close, so the gap criteria is simply a gap beyond yesterday’s closing band. I tested using SPY going back to 7/1/98. I’ll let the table speak for itself tonight.
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2 comments:

  1. BH_TradeMay 8, 2008 at 11:02 AM

    Appreciate your fact-based analysis. Thank you.

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  2. LPMay 8, 2008 at 1:42 PM

    after looking extensively into gaps...It's becoming pretty clear that smaller gaps tend to fill at a much higher rate...I find far too much randomness in larger gaps...in fact I think we've agreed that the larger the gap...the more likely it is to be a long only trade (at best)...

    I think gap fades work much better for trades in the .25% to .75%...as you noted earlier...

    I also think pegging the gap to an over bought/sold indicator may yield better than the 60% chance of success...

    In any event keep up the great work...

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