Comments on: Testing A Simple Gap Strategy

By: Jens

Jens — Fri, 01 Jul 2016 18:32:43 +0000

Thanks for a great post.
I wonder if each trade always was 100k size?
And if yes; is 0.4% profit target at all standard when it comes to morning gap targets, i thought it was more 1-2%?

By: Ben

Ben — Fri, 03 Apr 2015 14:24:38 +0000

Hi Mark, while I would be the first to say that your not going to get rich trading this strategy, it does grind out a decent profit over the long haul, even if you only use the baseline. Profit Factor can definitely be affected by several factors though, leverage included. This particular strategy is really just a good building block to either improve upon or develop your own strategy off of the core idea that we know has an edge.

By: Mark

Mark — Thu, 02 Apr 2015 17:58:31 +0000

Interesting study. With a profit factor of 1.21, is this strategy even worth doing? I guess what I’m also asking is whether profit factor can vary like Sharpe Ratio and annualized rate of return can [vary in proportion to leverage]?

By: Ben Little

Ben Little — Sat, 28 Mar 2015 15:48:33 +0000

Hi Guest, thanks for the comment. The Profit target and stop loss were not optimized in the article, the optimization tests were simply ran to make sure that the default profit target and stop loss had not been overly optimized in 2010 when the system was published. But you make a great point in the exceed limit setting. I’ve personally seen several “good” scalping systems that did not have that feature enabled, and it greatly inflated the results. You also alluded to another good point that back tested results are almost never reflections of real world results…they are simply a baseline of expectations. I heard Perry Kaufman once say that he generally only expected 50% of backtested profits in the real world. I think that is a bit on the pessimistic side, but when crafting a strategy it certainly is better to prepare for the worst-case scenario, and hope for the best.

By: Guest

Guest — Sat, 28 Mar 2015 03:48:58 +0000

Tradestation can create virtual reality, if you end up walking into the trap of any kind of optimization. Unless of-course safe guards are implemented.

Since in this exercise, you have optimized PT/SL, it helps to use “exceed limit price” setting.

This is more so applicable for intraday trades which hinge on a small edge, trying to make a point on an average over many trades/months.

And many times it happens so that the optimization engine will record a profit target hit, even when the price just touches it, which in reality you might never have been filled on your profit target.

If you test this or any other of you strategy which you have a profit limit target, exceed limit price setting will give a more real picture of its performance. ( this ofcourse is not applicable for limit entries, which can never be backtested effectively to show real world performance and hence all entries if you are backtesting should be market and with appropriate slippage and commissions which I think you have done to some extent, but personally I prefer to use $30 roundtrip slippage+commisions which is on the worst case side, but it helps me to avoid looking at a pretty curve in the initial stages and something else in reality later.)

just my 2 cents.

By: Ben Little

Ben Little — Mon, 17 Nov 2014 19:03:26 +0000

Alex, the results are in the article (2nd equity curve).

By: Alex

Alex — Sun, 16 Nov 2014 18:32:54 +0000

It would be good to provide the out-of-sample test results after 05/28/2010. Results before the in-sample may be useless because they may have been used to train an NN or genetic algorithm. It seems that after 05/28/2010 the performance is not good. Please provide results.

By: Ben Little

Ben Little — Fri, 14 Nov 2014 15:06:51 +0000

Thanks for the comment Robert! I just went back and double checked the workspace, everything was tested on the ES 1 min for data 1, it was just a typo on my part for the article, thank you for pointing it out, it will be corrected.

By: Robert Jacobson

Robert Jacobson — Fri, 14 Nov 2014 01:02:33 +0000

I’ve actually been trading the Bean Gap strategy (with some modifications) for two years. I’ve generally had good luck with it. The downside is that it only trades a few times each month.

I have one quibble: You’re testing this using Data1 on five-minute bars. That means that the opening order is placed (if the conditions are met) at 8:36. However, the book itself calls for trading this on one-minute bars, so the opening trade should be placed at 8:31.

In my experience, the one-minute bars are much more profitable. It might be worth re-running your tests on one-minute bars. You can also optimize this by testing the results with 8:31, 8:32, 8:33 … as the time of your opening trade.

By: Marco

Marco — Tue, 11 Nov 2014 12:00:55 +0000

Finally something good on gaps trading. I’m looking forward for a following post simply because this is a perfect add to my overnight trading.
http://nightlypatterns.wordpress.com