Gap Fade Stats for November

Dec 4, 2008: 10:54 PM CST

The first of the month means it’s time to look at the performance of overnight gaps on the DIA!  November was a particularly volatile month, with the average overnight gap being around $1.00 (100 Dow Points).  Let’s look at the percentages and numbers of filled and unfilled gaps for the month.

Gap Fill Chart:

Trading Days with Gaps:

Let’s define a ‘gap’ as being an overnight change of at least $0.25 in the DIA (roughly 25 points in the Dow Jones).  The Excel sheet lists the gaps and compiles the statistics for us.

Of the 20 trading days in November, 16 days resulted in a gap of at least $0.25.  The number of days stays the same until the gap size is increased beyond $0.36.

Of these 16 days, 9 days resulted in a filled intraday gap giving us a ‘gap-filled’ percentage (edge) of 56.25%.  How you placed your stops would determine the ultimate profit of the gap-fade strategy of course.

Four of Seven up-gaps filled (57%);
Five of Nine dow-gaps filled (55%).

If you raise your ‘gap’ criteria to $1.00, then there were 11 (55%) of trading days with a gap larger than $1.00, and 5 days filled the ‘large’ gap, for a fill percentage of 55%.

These are not historically normal times, and volatility is getting the best of us, but the gap-fill percentage remains consistent across virtually all my quick monthly studies.  Of course, the larger the gap, the lower the probability of a successful fill.

To look back at previous months, view any of my prior monthly summaries:

January Gap Fade Statistics
February Gap Fade Statistics
March Gap Fade Statistics
April Gap Fade Statistics
May Gap Fade Statistics
June Gap Fade Statistics
July Gap Fade Statistics
August Gap Fade Statistics
September Gap Fade Statistics
October Gap Fade Statistics

At the end of the year, I’ll run a complete study and will try to add results from using various stop-loss strategies so we can see ideal combinations to generate profit from this gap-fading strategy that has worked so well throughout 2008.

Corey Rosenbloom
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