Improving The Simple Gap Strategy Part 2

About the Author Jeff Swanson

Jeff is the founder of System Trader Success - a website and mission to empowering the retail trader with the proper knowledge and tools to become a profitable trader the world of quantitative/automated trading.

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  • CJ says:

    What trading hours do you use for this? The ES trades pretty much continuously… I’m new to futures.

    • The gaps strategy trades from 8:30 to 15:15 Central time. Thus, the gap is based upon yesterdays close vs today’s open.

  • Ryan says:

    By continually going back to the in sample data and searching for a filter that works with the OOS data, you’re performing an optimisation that might create a false signal. The monkey at the key board problem. When does your trading ‘gut’ tell you that you’re trying to fit and square peg through a round hole and it’s time to move on to another opportunity?

    • Hey Ryan. The issue you bring up is a concern. However, it may be worth the risk. Since we only tested two filters, testing different filters is hardly a concern. There are many more logical and simple filters which could be tested. Only after my usual battery of filter testing would I begin to see this concept as unproductive and move on. Yes, this is subjective but if you find yourself spending more time than usual trying to make an idea work, that’s when it may be time to move on. Putting a time limit on your development process may help. Maybe you find that most good ideas pan out in about 2-3 weeks of work. Thus, if you can’t get an idea to work within 4 weeks it may be time to move on. However, we are not there yet.

  • Marco says:

    Maybe cutting the profit target without waiting for the gap to fill should improve the odds.

  • Alex says:

    After the first oos test that data sample became part of the in-sample and it makes absolutely no sense to refer to it as an oss in subsequent tests. This is too basic to dismiss and one major cause of trader failures.

    • I would say undercapitalization and/or poor risk management is numero uno when it comes to traders failing.

      • Alex says:

        That two, you are correct. But data-snooping of the kind you did makes things a lot worse and you do not want that. Obviously, you have to admit that your second oos test is not an oos test.

        • Yes, this was discussed in the article. There are different risks based upon what actions we next take.

  • Ryan says:

    Having experience with or ‘feel’ for a market certainly cuts down on the process time. I also have a simple battery of high level tests that I run which assists in determining if my trade idea as any merit.
    Don’t give up on gap size filter. Take a look at short and long term market environment and various seasonality filters.

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