{"id":58709,"date":"2020-09-08T11:15:00","date_gmt":"2020-09-08T15:15:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=58709"},"modified":"2024-05-17T12:58:58","modified_gmt":"2024-05-17T16:58:58","slug":"should-you-buy-or-sell-stocks-that-gap-down","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/ibkr-quant-news\/should-you-buy-or-sell-stocks-that-gap-down\/","title":{"rendered":"Should you buy or sell stocks that gap down?"},"content":{"rendered":"\n

What happens when strong stocks gap down at the open? A well-known trading strategy is to buy the gap, expecting mean reversion. <\/p>\n\n\n\n

Buy the gap?<\/strong><\/p>\n\n\n\n

Buying stocks that gap down is a common trading strategy. The reasoning behind the strategy is that bad news causes traders to enter sell orders overnight which execute in tandem at the open, causing a temporary liquidity shock which drives down the opening price. The selling pressure immediately exhausts itself, however, leading the stock to recover through the remainder of the session. The strategy typically targets stocks in an uptrend, expecting that traders will buy the dip.<\/p>\n\n\n\n

I use Zipline with QuantRocket’s 1-minute US stock data to backtest a buy-on-gap strategy. I first screen the daily universe of 8,000 listed stocks using the following criteria:<\/p>\n\n\n\n

  1. common stocks only (no ETFs, ADRs, or preferred shares)<\/li>
  2. liquid stocks only (top 10% by dollar volume)<\/li>
  3. closed above their 20-day moving average<\/li><\/ol>\n\n\n\n

    \nmavg = SimpleMovingAverage(
    \n window_length=20, inputs=[EquityPricing.close])

    \n\nare_common_stocks = SecuritiesMaster.usstock_SecurityType2.latest.eq(
    \n “Common Stock”)
    \nare_liquid = AverageDollarVolume(window_length=30).percentile_between(90, 100)
    \nare_above_mavg = EquityPricing.close.latest > mavg

    \n\npipeline = Pipeline(
    \n screen=(
    \n are_common_stocks
    \n & are_liquid
    \n & are_above_mavg
    \n )
    \n)\n<\/p>\n\n\n\n

    For the stocks that pass the screen, I use intraday data to identify which stocks gapped down at least 1 standard deviation below the prior day’s low:<\/p>\n\n\n\n

    \ntoday_opens = data.current(context.candidates.index, ‘open’)
    \nprior_lows = context.candidates[“prior_low”]
    \nstds = context.candidates[“std”]

    \n\n# find stocks that opened sufficiently below the prior day’s low
    \ngapped_down = today_opens < (prior_lows - stds)

    \n\nassets_to_buy = context.candidates[gapped_down]\n<\/p>\n\n\n\n

    I buy the stocks 1 minute after the open and hold until the close, resulting in the following equity curve:<\/p>\n\n\n\n

    \"\"<\/figure>\n\n\n\n

    Visit QuantRocket LLC website to read the full article and download ready-to-use code: https:\/\/www.quantrocket.com\/blog\/buy-or-sell-down-gaps<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

    QuantRocket demonstrates coding with Zipline and QuantRocket’s 1-minute US stock data to backtest a buy-on-gap strategy.<\/p>\n","protected":false},"author":186,"featured_media":51126,"comment_status":"closed","ping_status":"open","sticky":true,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[339,338,341,352,344],"tags":[4922,494,1291],"contributors-categories":[13675],"class_list":{"0":"post-58709","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-data-science","8":"category-ibkr-quant-news","9":"category-quant-development","10":"category-quant-north-america","11":"category-quant-regions","12":"tag-econometrics","13":"tag-quant","14":"tag-technical-analysis","15":"contributors-categories-quantrocket-llc"},"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"\nShould you buy or sell stocks that gap down? | IBKR Quant<\/title>\n<meta name=\"description\" content=\"QuantRocket demonstrates coding with Zipline and QuantRocket's 1-minute US stock data to backtest a buy-on-gap strategy.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.interactivebrokers.com\/campus\/wp-json\/wp\/v2\/posts\/58709\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Should you buy or sell stocks that gap down? | IBKR Quant Blog\" \/>\n<meta property=\"og:description\" content=\"QuantRocket demonstrates coding with Zipline and QuantRocket's 1-minute US stock data to backtest a buy-on-gap strategy.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.interactivebrokers.com\/campus\/ibkr-quant-news\/should-you-buy-or-sell-stocks-that-gap-down\/\" \/>\n<meta property=\"og:site_name\" content=\"IBKR Campus US\" \/>\n<meta property=\"article:published_time\" content=\"2020-09-08T15:15:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2024-05-17T16:58:58+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2020\/07\/buy-sell-keyboard.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"900\" \/>\n\t<meta property=\"og:image:height\" content=\"550\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Contributor Author\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Contributor Author\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\n\t \"@context\": \"https:\\\/\\\/schema.org\",\n\t \"@graph\": [\n\t {\n\t \"@type\": \"NewsArticle\",\n\t \"@id\": \"https:\\\/\\\/www.interactivebrokers.com\\\/campus\\\/ibkr-quant-news\\\/should-you-buy-or-sell-stocks-that-gap-down\\\/#article\",\n\t \"isPartOf\": {\n\t \"@id\": \"https:\\\/\\\/www.interactivebrokers.com\\\/campus\\\/ibkr-quant-news\\\/should-you-buy-or-sell-stocks-that-gap-down\\\/\"\n\t },\n\t \"author\": {\n\t \"name\": \"Contributor Author\",\n\t \"@id\": \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/#\\\/schema\\\/person\\\/e823e46b42ca381080387e794318a485\"\n\t },\n\t \"headline\": \"Should you buy or sell stocks that gap down?\",\n\t \"datePublished\": \"2020-09-08T15:15:00+00:00\",\n\t \"dateModified\": \"2024-05-17T16:58:58+00:00\",\n\t \"mainEntityOfPage\": {\n\t \"@id\": \"https:\\\/\\\/www.interactivebrokers.com\\\/campus\\\/ibkr-quant-news\\\/should-you-buy-or-sell-stocks-that-gap-down\\\/\"\n\t },\n\t \"wordCount\": 315,\n\t \"publisher\": {\n\t \"@id\": \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/#organization\"\n\t },\n\t \"image\": {\n\t \"@id\": \"https:\\\/\\\/www.interactivebrokers.com\\\/campus\\\/ibkr-quant-news\\\/should-you-buy-or-sell-stocks-that-gap-down\\\/#primaryimage\"\n\t },\n\t \"thumbnailUrl\": \"https:\\\/\\\/www.interactivebrokers.com\\\/campus\\\/wp-content\\\/uploads\\\/sites\\\/2\\\/2020\\\/07\\\/buy-sell-keyboard.jpg\",\n\t \"keywords\": [\n\t \"Econometrics\",\n\t \"Quant\",\n\t \"technical analysis\"\n\t ],\n\t \"articleSection\": [\n\t \"Data Science\",\n\t \"Quant\",\n\t \"Quant Development\",\n\t \"Quant North America\",\n\t \"Quant Regions\"\n\t ],\n\t \"inLanguage\": \"en-US\"\n\t },\n\t {\n\t \"@type\": \"WebPage\",\n\t \"@id\": \"https:\\\/\\\/www.interactivebrokers.com\\\/campus\\\/ibkr-quant-news\\\/should-you-buy-or-sell-stocks-that-gap-down\\\/\",\n\t \"url\": \"https:\\\/\\\/www.interactivebrokers.com\\\/campus\\\/ibkr-quant-news\\\/should-you-buy-or-sell-stocks-that-gap-down\\\/\",\n\t \"name\": \"Should you buy or sell stocks that gap down? 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