TASC 2024.01 Gap Momentum System

2023년 12월 15일

█ OVERVIEW

TASC's January 2024 edition of Traders' Tips features an article titled “Gap Momentum” by Perry J. Kaufman. The article discusses how a trader might create a momentum strategy based on opening gap data. This script implements the Gap Momentum system presented therein.

█ CONCEPTS

In the article, Perry J. Kaufman introduces Gap Momentum as a cumulative series constructed in the same way as On-Balance Volume (OBV), but using gap openings (today’s open minus yesterday’s close).

To smoothen the resulting time series (i.e., obtain the "signal line"), the author applies a simple moving average. Subsequently, he proposes the following two trading rules for a long-only trading system:
• Enter a long position when the signal line is moving higher.
• Exit when the signal line is moving lower.

█ CALCULATIONS

The calculation of Gap Momentum involves the following steps:
1. Calculate the ratio of the sum of positive gaps over the past N days to the sum of negative gaps (absolute values) over the same time period.
2. Add the resulting gap ratio to the cumulative time series. This time series is the Gap Momentum.
3. Keep moving forward, as in an N-day moving average.