Gaps & Volatility, Part 1
Post a CommentWith all the record-breaking volatility, I thought it would be interesting to see if gap fading tends to do better or worse during volatile and in-volatile periods.
The following table shows the results of fading 10 contracts for all size gaps in the E-mini S&P 500 futures, 1/1/1998 -10/1/2008, at the open, targeting gap fill (i.e. prior close), and using an end-of-day stop. Results are segmented by the average 5 day ATR range.
Excluding the ATR range of 50 - 60 points (which only has a sample size of 10 trades), the "% profitable" was fairly consistent for all ATR ranges. The 20 - 30 point 5 day ATR range shows the highest historical win rate and profit factor while the 30 - 40 point range shows the lowest for both categories.
What the above table doesn't factor is the result of using a fixed size stop during these various periods of volatility. I'll evaluate the results of using a fixed 6 point stop to the same scenario in tomorrow's blog.
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