Gaps Trading - Too Good To Be True?
- Thread starter lightrader
- Start date
Thanks for the link. Cheers!
Good link. Incomplete though. Arxiv has some recent papers that haven't made it to the CFM site yet:
http://arxiv.org/find/all/1/au:+Bouchaud/0/1/0/all/0/1
I found 1309.3102, the nested factor model paper from September 2013, particularly interesting. Also one of his random matrix papers was very useful to me. Often, as in the above referenced factor decomposition paper, Bouchaud takes the method only so far, apparently leaving the working out of the next logical step to the reader.
Not all of his papers are useful. He occasionally publishes papers that seem to be complete misdirection, and also co-authors with a number of cranks-in-all-but-name.
Let's get serious for a second, if you can make 2% a day you are already a master trader and you could turn a mere $10,000 into almost a million dollars and a half at the end of the year !!
To give you some perspective, most Wall Street traders (Gordon Gekko included) would kill their mother for just a 2% return on investment per month.
That said, some gap trading techniques do work (see "Day Trading Methods" from Jake Bernstein for example), but the drawdown is usually quite large.
Quote from Pipflow:
I tried this gap trading earlier, but it was true that these gaps actually did not close in certain currency pairs and thus i had to incur some huge losses.Not a good strategy to rely upon.
You need to consider the market you're trading.
FX is a true 24-hour market. Equity indexes and stocks are not.
Gaps, i.e., prior close prices are very significant in the indexes. I have little to none experience with single stocks, but I would imagine it to be similar.
Never said anything else...