Looking at this wild week in the market I decided to look at the old gap trade. The gap trade is fading a gap open, and used to be a staple trade, but in the last few years it has not worked as well.. For example , if a stock opens up 2%, you sell it and hope for the gap to close.

So I coded up a NinjaScript strategy to trade the gap trade and took a look at RIMM. No real reason I picked RIMM, it is just one of those volatile internet type stocks. I have not tested the strategy on other stocks, but feel free to test it out.

Nine trades , all profitable, for a cumulative profit of 21% over the last couple of weeks. I have not done testing on other stocks, but it seems like the gap trade is working now.

Take a look at the image on my right. You can click on it to get a full size image. This is an image of the strategy analyzer, which is backtesting. The total net profit was $9.53 over two weeks which is not bad for a $44 stock. If you will notice that there were five trades, with four long trades in this market. The market has been wild so this strategy has been making long trades after some of these selloffs.

You can download the Gap Trade Strategy here. You need to run NinjaTrader 6.5 which pretty much everyone runs. You do have to register it, but it is mainly so you can read the legal mumbo jumbo that my legal guy wants. You just have to read the license and click ok.

DOWNLOAD Gap Trade Strategy

HOW TO USE THE STRATEGY
[1] The strategy only works on intraday data, not daily data.
[2] There is also only one parameter and that is the percentage of the gap for the trade to occur. So a setting of 2 would be a 2% gap.
[3] The strategy closes all trades at the end of the day.