Gap Fade Stats for October

Nov 3, 2008: 10:13 AM CST

The volatility of October in the stock market provided a remarkable number of gap openings which provided risk and opportunity for nimble gap fade traders.  With the new month upon us, let’s see how the traditional DIA opening fade gap statistics fared during October.

For the first study, let’s look at DIA prices (downloaded from Yahoo Finance) and define a ‘gap’ as being at least a $0.25 (25 Dow point) difference from yesterday’s close to today’s open.

DIA overnight gap size = $0.25

Of the 23 trading days in October, all but one (22) days (95%) resulted in an overnight gap of at least 25 cents, and 54.5% of these gaps filled intraday.  The average up and down gap was an amazing $2.02!

In terms of upside gaps, 5 of 9 filled (55.5%)
In terms of downside gaps, 7 of 13 filled (54%).

Let’s raise the gap sensitivity filter to $1.00 (or roughly 100 Dow Points).

DIA overnight gap size = $1.00

Generally, the trend through gap research is that the larger the gap, the less likely it is to fill.  This chart helps add evidence to that concept.

Sixteen of twenty-three trading days (70%) yielded a gap greater than $1.00 which is outstanding, reflecting the underlying uncertainty and volatility in October.  Of these 16 days greater than $1.00, only 6 gaps filled for a “gap fill” percentage of 37.5%.

Finally, the full data table showing the massive amount and value of October gaps:

Your success at deploying the gap-fade strategy will be based to your stop-loss strategy, execution/fills, scaling in/out decision, among other factors.  Many gap-faders may have even chosen to stay out of the market most of the time due to the volatility, and that is a decision you’ll have to make too (in terms of comfort with the current volatility environment).

As always, guard your capital and trade lighter if need be.

Click for prior gap fade statistics for the previous months of the year:

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

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