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The gap fading strategy from previous posts looked all right, but my worry is that Yahoo data does not provide accurate quotes. To check the strategy performance, I’ve generated a new OHLC dataset based on the Weighted Average Price (wap) of 30-second intraday data. So the opening quote is the wap of first 30 seconds of trading and close is the last 30-second wap. To make sure that my dataset is correct, I have compared it to the yahoo quotes. As shown in the chart below, the difference between the two quotes is ~5ct which seems very reasonable.

Now, testing the gap fade strategy on the OHLC data that I generated myself produces much less favorable result:

One look at the pnl chart is enough to say that this strategy would be rubbish.
This brings me to a conclusion that I already was aware of: Yahoo opening quotes are not suitable for strategy backtesting.

2012-09-28 12:00:08

Source: http://matlab-trading.blogspot.com/2012/09/gap-strategy-with-intraday-data.html