Info!! What Nosotros Tin Sack Acquire From Large In Addition To Minor Opening Gaps Inward The S&P 500 Index

Here's a picayune practise from my Excel lab, where I investigate historical patterns:

Recall the postal service on relative gap, where nosotros await at the opening gap (the distance betwixt today's opened upwards too yesterday's close) equally a business office of recent marketplace volatility. If nosotros await historically, what constitutes a large opening gap vs. a normal one?

I went dorsum to the laid about of 1995 inwards the S&P 500 Index (SPY) too calculated each day's gap equally a business office of the previous 20 days' median daily high-low cost range. It turns out that, over that period, the median gap is unopen to nada (just equally many days gap upwards equally gap down), amongst a measure divergence of well-nigh 40%.

What that agency is that well-nigh 2/3 of all opening gaps volition last inside 40% of the median volatility of the prior 20 days. Given that electrical flow 20-day median hit is running well-nigh 2.1%, that agency that well-nigh 2/3 of all days volition autumn inside a gap of +.84% too -.84% (about 7-3/4 ES points or .75 SPY point).

So why is that important? If nosotros teach an opening gap running much to a higher house or below that point, nosotros convey overnight get that is relatively odd from a statistical advantage point. This tells us that events overseas and/or preopening economical reports are moving the marketplace to an odd degree--a worthwhile dynamic to banking concern complaint for the open.

Interestingly if nosotros teach dorsum to 1995, nosotros detect that the size of the overnight gap correlates .30 amongst the coming day's relative high-low cost hit (the day's hit sized equally a business office of prior 20-days' volatility). That is non a huge correlation, but it is pregnant too worth noting. One of the starting fourth dimension heads upwards nosotros teach equally to whether or non today's session volition last busy too volatile comes from overnight trade. For instance, when the opening gap is larger than 50% of the median daily trading hit over the by 20 days, the coming twenty-four hours session averages a hit of 138% of that range. When the opening gap is less than 10% of that median range, the coming twenty-four hours session averages 102% of the range.

If nosotros combine overnight gap amongst early on relative book inwards the ES futures, nosotros tin piece of job into at a surprisingly skillful guess for the day's volatility--key to helping curt term traders sympathise whether a marketplace is probable to concord much or picayune opportunity.
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