The gap fading strategy from previous posts looked all right, but my worry is that Yahoo data does not provide accurate quotes. To check the strategy performance, I've generated a new OHLC dataset based on the Weighted Average Price (wap) of 30-second intraday data. So the opening quote is the wap of first 30 seconds of trading and close is the last 30-second wap. To make sure that my dataset is correct, I have compared it to the yahoo quotes. As shown in the chart below, the difference between the two quotes is ~5ct which seems very reasonable.
Now, testing the gap fade strategy on the OHLC data that I generated myself produces much less favorable result:
One look at the pnl chart is enough to say that this strategy would be rubbish.
This brings me to a conclusion that I already was aware of: Yahoo opening quotes are not suitable for strategy backtesting.
This brings me to a conclusion that I already was aware of: Yahoo opening quotes are not suitable for strategy backtesting.
This blog interests me! I hope you keep it up!
ReplyDeleteI think you're right.. but if you properly select gaps you can improve profit factor.. I know what you mean 70% winning and profict factor not bigger of 1,05. It's simply terrible.. What do do you think of Scott Andrews work on it?
DeleteMy blog
http://backtestingvix.wordpress.com/
http://nightlypatterns.wordpress.com/
the first graph looks like Additive White Gaussian Noise, what is this called in finance study?
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