It’s time to see how many gaps were formed and filled through the month of July!  July recorded the best performance so far for the ‘gap fill’ strategy – let’s look at the numbers.

For these studies, I use the DIA (Dow Jones ETF) and consider a ‘gap’ as being any opening price that is at least 20 cents (20 Dow Points) different than its closing price.  A gap fill is signaled once price does gap and then trades back to at least equal to the prior day’s close.

“Fading a Gap” means shorting a gap-up and buying a gap down, usually as soon as it happens.

For the month of July 2008, 15 out of 21 trading days opened with a gap of at least 20 cents (that’s 71% of days opened with some sort of gap!).

Of these 15 gap opening days, 12 gaps filled, meaning 80% of all gaps in July were filled!

Teasing the numbers a little, we find the following:

8 of 10 (80%) of gap ups were filled.
4 of 5 (80%) of gap downs were filled.

What if we increase our definition of a gap to mean at least $0.50 change (or 50 Dow Points) from prior close to the morning’s open:

8 of 21 days (38%) showed a morning gap of at least 50 cents.

6 of these 8 days’ gaps were filled, for a ‘gap fill’ percentage of 75%.

2 of 3 (66%) of gap ups were filled.
4 of 5 (80%0 of gap downs were filled.

Let’s define a “gap” as being greater than $1.00.

There were 4 trading days that showed an overnight gap greater than $1.00, and 3 of these gaps filled (75%).

These are fascinating statistics for gap-fill traders and for all market participants in general.  For gap-faders, July was about ‘as good as it gets!’

For an individual month’s performance, check out the following monthly posts from Afraid to Trade:

January Gap Fade Statistics
February Gap Fade Statistics
March Gap Fade Statistics
April Gap Fade Statistics
May Gap Fade Statistics
June Gap Fade Statistics