Overnight Gap Fade: does it work?
Last updated
Did Overnight Gap Fade beat the benchmark in Tickfloor's test?
No. We tested Overnight Gap Fade on 2 ETFs, 2005 to 2025. After costs, it returned 9.9 percentage points a year less than the benchmark. None held up once we allowed for the many other rules we tested. This is a historical test of the rule as described, not a prediction or advice.
None of these versions passed. Sample: 303 completed trades over 2005-01-04 to 2025-03-14 (20.2 years). Proxy experiment, not the instrument named: QQQ for SPY.
Index ETFs often open well away from yesterday's close, and a well-known idea is that the gap tends to get filled, so you trade against it.
The rule we tested. If the open is more than 1.5% above the prior close, go short; if it is more than 1.5% below, go long. The harness settles close to close, so the position is held over the next daily bar. FOMC statement days are skipped. QQQ and DIA stand in for SPY.
- Overnight gap fade on equity index ETF (QQQ/DIA proxy) (2 ETFs (QQQ standing in for SPY)), 2005-01-04 to 2025-03-14, costs 0.05% per side: −9.9 pts/yr vs the benchmark across 303 completed trades, unadjusted p=1.000, BH-adjusted q=1.000: did not beat the benchmark.
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Receipt: parameters, data, window and result file
- Run id
- mrsa-gap-fade-equity-index, run 2026-10-06
- Frozen parameters
- timeframe 1d; gapThreshold=0.015
- Data source
- vendor not recorded in the result file; data fingerprint sha256 e7180d80c35df18a...
- Instruments and coverage
- 2 assets: QQQ, DIA; QQQ stands in for SPY
- Date window
- 2005-01-04 to 2025-03-14 (discovery cutoff 2025-03-15)
- Sample
- 303 completed trades over 2005-01-04 to 2025-03-14 (20.2 years)
- Cost rule
- 0.05% per side; charged on every change in position/weight; benchmark pays none; no funding/borrow on shorts
- Fill rule
- not recorded
- Benchmark
- equal-weight long of the same assets, rebalanced daily across assets trading that day (no costs)
- Rule source (public)
- research/hunt2/strategies/mrsa-gap-fade-equity-index.mjs
- Run record (public)
- research/hunt2/ledger.jsonl, line with id mrsa-gap-fade-equity-index
- Full result file
- not published yet
No. None of the versions we tested passed. After costs: ETFs −9.9 pts/yr vs the benchmark. None held up once we allowed for how many other rules we tested. That covers the versions, costs and benchmark described here, not every version of the rule. These are historical diagnostics, not validation under Testing Standard v2: the backtest harness predates that standard and has not been re-run to meet it.
Tested a rule of your own? Check whether your backtest is just luck. It is free and needs no account.
Failed: only the tested version above. Not tested: Other gap thresholds; intraday exits at the gap fill; single stocks; SPY itself. A result for the tested version says nothing about these.
This is one line in a bigger check. The research desk has run 1083 strategies, most against an equal-weight benchmark of the same assets rebalanced daily that pays no costs (the strategies pay theirs). After correcting for how many we tried (Benjamini-Hochberg, 1425 tests), 0 passed. That does not prove no strategy works, and it says nothing about versions we did not test. These are historical diagnostics, not validation under Testing Standard v2: the backtest harness predates that standard and has not been re-run to meet it.
General information only. It doesn't consider your objectives, finances or needs. Tickfloor holds no financial services licence and never places trades.
Short answers: the verdict and the rule, as questions
Does fading the overnight gap work?
No. None of the versions we tested passed. After costs: ETFs −9.9 pts/yr vs the benchmark. None held up once we allowed for how many other rules we tested. That covers the versions, costs and benchmark described here, not every version of the rule. These are historical diagnostics, not validation under Testing Standard v2: the backtest harness predates that standard and has not been re-run to meet it.
What exact rule did Tickfloor test?
If the open is more than 1.5% above the prior close, go short; if it is more than 1.5% below, go long. The harness settles close to close, so the position is held over the next daily bar. FOMC statement days are skipped. QQQ and DIA stand in for SPY.
Is this financial advice?
No. This measures a publicly claimed strategy rule, not a recommendation. General information only, not personal advice.
See the full numbers on the Mean reversion family page, or the full method and every result.