Gap Fade Statistics for March

Apr 6, 2008: 3:59 PM CST

March was certainly the month for overnight gaps in the US Indexes! I list here the results of my monthly study of overnight gaps in the Dow Jones ETF (DIA – the “Diamonds”) to see the percentages that help determine the validity of the “Fade the Gap” strategy.

Let’s look at March’s simple statistics:

Of the 20 trading days in March, 17 (yes, seventeen!) of the days resulted in an overnight gap of greater than 10 Points ($0.10 on the DIA). This means that 85% of trading days in March showed some sort of overnight gap in the DIA. I’m not sure if that’s a record, but it is abnormally high. Gaps often frustrate many traders.

Of these 17 gaps, 12 of them ‘filled,’ meaning they traded exactly or beyond yesterday’s close at some point during the next trading day. Thus, 70% of all gaps filled for the month.

There were 8 overnight down gaps, and 9 overnight up gaps.

Of the 8 overnight down-gaps, 6 of these gaps filled, meaning 75% of down-gaps filled.

Of the 9 up-gaps, 6 gaps filled and 3 did not, meaning 67% of up-gaps filled.

Newer traders might expect bearish environments – which is what March gave us most of the days – to result in more negative gaps being unfilled because price was expected to head lower. As with most aspects of the market, what seems logical rarely occurs. In fact, what would have paid off handsomely in March would have been to BUY down-gaps and sell when price filled the gap (and selling at the end of the day if price failed to close the gap).

March actually gave the DIA the first ‘up’ month for 2008, but before you get too excited, price closed the month 0.25% higher than it ended in February. What it did give us is the most gaps in a month for 2008!

Please see my previous monthly statistics for more information:

January Gap Fade Statistics
February Gap Fade Statistics

So far, 45 of 61 trading days (73%) for 2008 have resulted in some sort of overnight gap .

Of these gaps, 28 of the 45 gaps have filled, meaning 62% of all gaps for 2008 have filled intraday.

What’s in store for April?!

2 Comments

2 Responses to “Gap Fade Statistics for March”

  1. andrer Says:

    Hmm, you have something wrong with your numbers. 75% of down-gap filling plus 67% of up-gap filling cannot amount to 64% of filling for all gaps combined.

    On a closer inspection, you first mention 11 out of 17 gaps filled, but adding the down and up gap discrimination you have 12 out of 17 being filled 🙂

    Sorry for being picky. You have an excellent blog here which I follow hourly. Hell, I learned how to fade gaps thanks to your posts.

    Keep up the good work.

  2. Corey Rosenbloom Says:

    Andrer,

    Thank you for catching that! I wanted to get the numbers to be accurate, but on my final run-through, realized I had made a mistake and failed to change the overall number, though I got the individual numbers right.

    I love this trade and am glad to know I can be of help!