Analysis of My 2009 Gap Trades

The impressive rally of 2009 was almost as concerning to us market-neutral traders / investors as the record-setting selloff of 2008.  But I managed to keep it going and with the exception of one problematic period in late March and early April (as the v-bottom was formed), I had a very good year. The equity curve for 2009 can be see in the prior post, "My Gap Trading Since the Markest Peaked in October, 2007."

Here's a detailed breakdown of my 2009 trades:

• Win rate:  65% (48/74)
• Profitable months:  11
• Losing months: 1
• Profits per contract for year:  $2827 
• Profits per contract per trade:  $38.20 (note does not include commissions which average $3-5 per round-trip trade depending on the account and broker)
• # Short trades:  53 (72% of all trades)
• Short win rate:  64%
• Short % of total profits: 77%
• # Long trades:  21 (28% of all trades)
• Long win rate: 67%
• Long % of total profits: 23%
• Average win size: $202 / contract
• Average loss size: $264 / contract
• Win / loss ratio:  .77
• Extended target: 35 attempts, 24 hit / 11 missed (69% success)
• Time in market:  .7 %  (62 hours / 8760 hours for the year)
• Average trade length: 50 minutes
• Average winning trade length: 42 minutes
• Average losing trade length: 1 hr, 05 minutes
• Most consecutive wins: 8 (1 time), 7 (1 time),  5 (3 times)
• Most consecutive losses:  4 (1 time), 2 (3 times)

Comments

[rwb123]

Thanks for the info Scott!

[Gap Student]

Scott, I appreciate all the information you have made available through this site and MTG. I receive your daily updates, but have not subscribed to this point.

After much research, and some limited gap trades, here is my main concern with gaps: With your 65% win rate (with the stops you use), and average losses that exceed average wins, don't slippage and commissions make your actual return pretty slim? With the ES, are you losing $12.50 per contract in slippage both in and out (on average)? I believe you recently mentioned on a daily update that you were losing 2 ticks in slippage lately just to get in. To me that says you could easily lose $37.50/contract per trade in slippage, plus commission costs. (A scarier number is $375.00 slippage, + ~$40 commissions, for 10 contracts PER TRADE). That just seems like quite a hole to climb out of to consistently make a profit. Am I missing something here? Are your numbers above already net of all slippage?

Thanks,
Appreciative Student

[Gap Guy]

Thanks for the note and excellent question. The above info (as well as my results that I published for 2007 and 2008) are INCLUSIVE of any slippage I may have incurred. Commissions are not included but are pretty nominal and have generally averaged about 5-10% of my net profits depending the size of my returns for that given year.

In general, slippage and commissions have a greater impact on strategies that have smaller average win size like that associated with scalping strategies that may only average about 1-2 points per win. But with gaps, my average win size historically is about 3.5 - 4 pts per contract.