Gap Momentum: Trading Opening Gaps with a Smoothed Signal

Summary

The gap momentum method measures the difference between each opening price and the previous close. It sums positive and negative gaps over a rolling window, forms their ratio, and smooths that series with a moving average. The described trading rule enters long when the signal rises and closes or reverses when it falls; a long-only setting is available. The document attributes the indicator to a published article and provides a BTC/USDT futures backtest configuration, but gives no performance results.

The method aims to capture continuation after opening gaps, while the notes warn that gaps can quickly fill and that choppy markets may produce repeated reversals. Parameter tuning can also overfit. The source code’s actual trigger compares the smoothed signal with its prior value, rather than explicitly crossing a separate momentum series over its average as some of the prose suggests. The approach is presented as applicable to volatile stocks, while its supplied test uses cryptocurrency futures, so its behavior across those markets remains unestablished.

Key ideas

• The indicator compares rolling sums of positive and negative opening gaps and accumulates their ratio into a gap momentum series.
• A smoothed signal is used to enter long when rising and exit or reverse when falling.
• The document provides a BTC/USDT futures test configuration but no reported performance.
• Gap fills and choppy markets can create false or repeated signals.
• The prose and source differ in how they describe the signal crossover rule.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.