The market gaps a lot and had little movement intra day - in
fact the market has made the majority of its gains overnight on
gaps. I've shown these statistics a few years ago, however I
thought it was time to post them again because they really
illustrate this point well.
I wrote two very
basically strategies in Tradestation to graphically illustrate this
point:
One strategy simply
buysthe ETF SPY at
the
openand
sells it on the
closeof the
same day.
The other strategy simply
buysthe ETF SPY at
the
closeand
sells it on the
openof the
next day.
For the strategies I'm using $100K for each buy and I'm not
counting commissions because these are not meant to be strategies
that you actually trade - I'm simply showing the effect that gaps
have had on the market over the last 18 years.
As you can see from the two profit curve charts below, the
results are quite astounding, if you bought the SPY ETF every day
on the open and sold it at the close of the same day, you lost
money consistently every year! Your $100K turned into about
60K losing about $40!. Amazing that you actually lost money
simply buying the open and selling the close.
The second chart shows what happens if you simply buy the SPY at
the close and sell on the open of the next day - as you can see,
your $100K turned into over $400K!! Quite a difference!
So as you can see - if you recently thought to yourself, "man
the market gaps all the time and seems to make most of its moves
overnight" you are right - in fact the results are probably more
shocking than you realize. The public masses think that the
market makes its gains during the day, but this is not the
case.
Also guys - regarding the SPY Ver 2 and Pro systems - this is
why those systems exit their long positions on the next day open vs
that same day
Guys - I'll do one better, here's the TS ELD code and workspace
so that you look for yourself for those of you who have
Tradestation
1 -
Right Click Hereto download the ELD File for the gap effects - The ELD must be
installed first before open the workspace.
2 -
Rick Click hereto download the Workspace containing the two SPY charts with
the 'buy open sell close' and buy 'buy close and sell next day
open' systems already pre formatted
Wow! I guess we all suspected it to a degree, but you
quantified it beautifully! I have a few questions:
1. Would it be possible to identify shorter term market
trends that supports this setup?
2. Conversely, is it logical to short SPX during market
hours?
3. For overnight trading, would /ES futures be
appropriate?
The market has made the majority of its gains overnight on gaps - powerful statistics
Posted by matt on 2nd of Aug 2013 at 01:40 pm
The market gaps a lot and had little movement intra day - in fact the market has made the majority of its gains overnight on gaps. I've shown these statistics a few years ago, however I thought it was time to post them again because they really illustrate this point well.
I wrote two very basically strategies in Tradestation to graphically illustrate this point:
One strategy simply buysthe ETF SPY at the openand sells it on the closeof the same day.
The other strategy simply buysthe ETF SPY at the closeand sells it on the openof the next day.
For the strategies I'm using $100K for each buy and I'm not counting commissions because these are not meant to be strategies that you actually trade - I'm simply showing the effect that gaps have had on the market over the last 18 years.
As you can see from the two profit curve charts below, the results are quite astounding, if you bought the SPY ETF every day on the open and sold it at the close of the same day, you lost money consistently every year! Your $100K turned into about 60K losing about $40!. Amazing that you actually lost money simply buying the open and selling the close.
The second chart shows what happens if you simply buy the SPY at the close and sell on the open of the next day - as you can see, your $100K turned into over $400K!! Quite a difference!
So as you can see - if you recently thought to yourself, "man the market gaps all the time and seems to make most of its moves overnight" you are right - in fact the results are probably more shocking than you realize. The public masses think that the market makes its gains during the day, but this is not the case.
Also guys - regarding the SPY Ver 2 and Pro systems - this is why those systems exit their long positions on the next day open vs that same day
Amazing observation! Thanks for the
Posted by carrieg on 2nd of Aug 2013 at 02:55 pm
Amazing observation! Thanks for the insight.
Guys - I'll do one
Posted by matt on 2nd of Aug 2013 at 02:47 pm
Guys - I'll do one better, here's the TS ELD code and workspace so that you look for yourself for those of you who have Tradestation
1 - Right Click Here to download the ELD File for the gap effects - The ELD must be installed first before open the workspace.
2 - Rick Click here to download the Workspace containing the two SPY charts with the 'buy open sell close' and buy 'buy close and sell next day open' systems already pre formatted
Title: Setups Both Long and
Posted by steve_nakos on 2nd of Aug 2013 at 02:21 pm
Wow! I guess we all suspected it to a degree, but you quantified it beautifully! I have a few questions:
1. Would it be possible to identify shorter term market trends that supports this setup?
2. Conversely, is it logical to short SPX during market hours?
3. For overnight trading, would /ES futures be appropriate?
WOULD NOT HAVE BELIEVED THIS WITHOUT
Posted by bugsdrugs on 2nd of Aug 2013 at 02:08 pm
WOULD NOT HAVE BELIEVED THIS WITHOUT THE CHARTS
GREAT CHARTS
Very nice analysis!
Posted by swh13 on 2nd of Aug 2013 at 02:03 pm
thanks for posting this Matt!
How would the last 18 months look with this strategy (similar?)
Posted by shopper on 2nd of Aug 2013 at 02:01 pm
very interesting Matt. Excellent analysis as
Posted by wowten on 2nd of Aug 2013 at 02:00 pm
very interesting Matt.
Excellent analysis as usual.
A sign of manipulation perhaps? Or not?
Posted by cubby on 2nd of Aug 2013 at 01:49 pm