The gap fading system that I was hoping to trade on US stocks has run into a bit of trouble. Actually alot of trouble. The problem is that it can't be traded, and here's why.
I believe the opening auction system works differently in the US compared to the ASX. In the local market, the most liquidity for the large cap stocks especially, always occurs at the open and at the close (usually higher at the close).
BHP or CBA, for example, each of which routinely turnover hundreds of millions of dollars per day , would do about $2-10million right on the open.
But over in the US, even some of the high turnover NYSE tickers like WYE and JNJ, you only get 100 shares going through on the open! And these guys turnover the same or more than BHP or CBA. What i noticed in the course of sales is, about 5-10 seconds after the open, the party finally gets started and you see the 10,000 share and 20,000 share parcels start going through. Which is useless for a system that is supposed to buy "the open" as you wouldn't be able to catch this liquidity using "limit-on-open" type orders.
The NASDAQ opening auction system must work differently to the NYSE because they seem to have much higher opening liquidity across the board (in the hundreds of thousands range, so still not the millions I was hoping for).
So its back to the drawing board for the short term system. It looks like I may need to turn to intraday timeframes if I want to maintain my 100% overnight cash position and still generate a super smooth equity curve.
