Thursday, September 27, 2012

Gap strategy with intraday data

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.


  1. This blog interests me! I hope you keep it up!

    1. I 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?
      My blog

  2. the first graph looks like Additive White Gaussian Noise, what is this called in finance study?