Perhaps this is because small-cap stocks are more subject to liquidity shocks, which tend to mean-revert. The strategy works better on large-cap stocks than on small-cap stocks.From 2014-2020, the Sharpe ratio is 1.30 and the annual return is 10%:Įxperimenting with parameters, I make two observations: I reverse the rules and indeed find a profitable strategy. Why not simply reverse the sign of the trade and go short instead of long? The performance of the buy-on-gap strategy is so bad, it suggests a good strategy. I buy the stocks 1 minute after the open and hold until the close, resulting in the following equity curve: Sell the gap Gapped_down = today_opens < (prior_lows - stds)Īssets_to_buy = context.candidates # find stocks that opened sufficiently below the prior day's low Window_length= 20, inputs=)Īre_common_stocks = stock_(Īre_liquid = AverageDollarVolume(window_length= 30).percentile_between( 90, 100)Īre_above_mavg = > mavgįor the stocks that pass the screen, I use intraday data to identify which stocks gapped down at least 1 standard deviation below the prior day's low: today_opens = data.current(, 'open')
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