Thursday, January 29, 2009

When The Market Gaps Up & Continues Higher

Days that gap higher, don’t fill their gap and close above their open have a tendency to pull back over the next several days.

In order to get a decent sample size I decided to use the 1% gap level as my criteria in testing. Below I look at the daily performance numbers over the following week:


While the “% Wins” isn’t much worse than a coin toss on average, the poor W/L Ratio creates a negative expectancy. The bearish implications peak at 4 days across the sample. Not seen in the above table is that about 70% of all instances closed below their trigger price at some point in the following 3 days. This number increases to 89% when looking out 6 days.

3 comments:

Penn State Football email list said...

Sing it, brother! Cha-ching!

Kevin said...

Gap fillage!

Anonymous said...

The VIX study http://quantifiableedges.blogspot.com/2008/05/is-low-vix-short-trigger.html is in play here.

Quote:

"1) Short the S&P 500 when the VIX crosses from below to above the lower 10% envelope but remains below its 10-day moving average on a closing basis. 2) Exit the trade when the VIX closes above its 10-day moving average. Here you would have had 58 trades. The average trade would have made you about 7 S&P points and the total system gain, or S&P points lost, over the time period is 403.17 – a very substantial number."