Strategy: Gap Trading

The Gap Trading strategy is based on the theory that big overnight moves cause the stock to behave differently the next day. For example, a strategy of "fading the gap" means that you trade in the opposite direction of a gap hoping it will "fill" (the price will go back to what it was the day before).

To test this theory, we ran a backtest, which means we simulated how much profit it would have made if we had traded it for real using historical data. This is a good indication of how well the Gaps strategy would do in live trading for real. To keep it simple, we enter each trade at the day's open and exit at the close of the day.

Results: In our backtest, the AI model's accuracy (up or down prediction) was ______.
The profit/loss backtest had a Profit Factor (PF) of ____ and is shown in the table and chart below. A PF greater than 1 means it would have made a profit. This backtest does not include commissions or the bid/ask spread.




You can run this backtest yourself in our Gaps Google Colab notebook: Pickstocks.com - Machine Learning. It uses our open-source GitHub repo at Pickstocks GitHub. You can also change the data or AI strategy yourself if you want and then backtest it using our repo.