Gap Fade Statistics for February

Mar 3, 2008: 6:37 PM CST

Let’s take a quick look at the base statistics for overnight gaps and fills for the month of February.

I used the DIA (Dow Jones ETF) for the basis of the study, though the SPY gives near identical results in terms of percentages.

Of the 20 trading days in the month of February, 2008, an astounding 15 days had some sort of overnight gap, meaning that 75% of trading days in February experienced an overnight gap in the stock market.

Of these 15 days with a gap, 8 gaps filled by the close of the day, and 7 gaps remained unfilled by the close of the trading day.

Thus, the classic gap-fade strategy (entering to trade against the gap) held a slight edge over trading in the direction of the gap from a percentage basis, 53% successful to 47% failure.

Your actual profit for this strategy would be dependent on your type of stop-loss method and position sizing strategy you use.

Here is a quick summary of the data:

Of the 20 total trading days in February, 15 resulted in an overnight gap.

8 (53%) of these trading days filled the gap, while 7 (47%) did not.

See my earlier post on Gap Fade Statistics for January, where 65% (13 of 20) of trading days resulted in a gap, and of these 13, 9 (70%) of the gaps filled the same day and 4 (30%) did not.

For trivia’s sake, 28 of the last 41 trading days (68%) have resulted in overnight gaps, and 17 of those 28 have filled, meaning that 60% of this year’s gaps have filled by the close.

8 Comments

8 Responses to “Gap Fade Statistics for February”

  1. jdt Says:

    god stats that i have wondered about. ok, next task… ow about stats on the previous days close…such that…xxx% gap occured in the opposite direction of the previosu days close, and xxx% gap occurred in the same direction as the previsous days close. I think some $$$could be made here, as my basic theory is at all times, the market operates on total greed–bull or bear–and will do anything it has to to relieve it’s participants of their $$$. what say you?

  2. Armine Abrahamyan Says:

    I am not surprised. I am a huge fan of GAP products and I am ready to buy all the items of its winter collections.

    -armine

  3. 10kthrownaway » Blog Archive » The 8:01 Report Says:

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  4. TheFinancialNinja Says:

    Love the stats. I wonder if you can ‘gap fade’ these charts…

    Really Scary Fed Charts: March

  5. Corey Rosenbloom Says:

    Armine,

    How funny! I think you’re a little off on the concept of ‘gap’ 🙂

  6. Corey Rosenbloom Says:

    I don’t know, Ninja.

    Those charts don’t seem to gap. I posted a public link to your post – really excellent work there.

  7. Corey Rosenbloom Says:

    JDT,

    That would be a good study, and I may look into it.

    For example, we know we’ve been in a down-trend, and it turns out that most of the gaps that failed to close were downside gaps. Most upside gaps closed.

    I need to run those numbers to differentiate, and that may be my next project. Thank you for the inspiration!

  8. McCan Says:

    jdt,

    On Greed:
    Greed, when married to the pursuit of convenience (efficiency’s lazy cousin), renders trends where the herd won’t turn away from the cliff until they can smell the blood of the large portion of their kin that have already been smashed on the rocks below. The GAP between the first group leaving the plateau while still under gravity’s influence and the first group to turn away from the abyss is when money is left hanging like unclaimed freight in the cargo hangar. Standing at the lip on a secure bit of ground that the herd hasn’t bothered to identify, leaves one in position to gather the money left behind by the fallen. They can’t take it with them. I can.

    On GAPs: study not only relation of GAP on day X to GAP on day X-1 and day X+1, study GAP-trade behavior within the market trend. Do greed’s expressions in a down trend provide different GAP-tells then in an up trend? Hmmm, may have to look into this one…