Evaluating same-day gap rules across price, momentum, and weekday

What the premarket window recorded

Premarket prints were gathered on weekday mornings shortly before the regular 9:30 ET open from 1 February 2006 through 31 July 2006. Those prints included the pre-open price, the prior close, and premarket volume so overnight percent change could be computed.

Overnight percent change is the percentage distance from the prior regular-session close to the latest pre-open price. The premarket window is trading that occurs before the regular United States cash session opens at 9:30 ET.

Gap trading treated the overnight dislocation versus the prior regular-session close as the event a same-session long or short rule may act on.

The same-session hold stays fixed

The procedure under evaluation entered at the regular-session open and exited at that same day's close.

Short entries were restricted to names priced above six dollars.

Price bands on the long side

One long-side slice held premarket volume at 10,000 or more and overnight change at 20 percent or more, then reported results across price bands under 5 dollars, 5 to 10, 10 to 25, 25 to 50, and 50 and above.

A price band is a stock-price slice used so cheap, mid-priced, and high-priced names are not averaged together.

The above-50 overnight-decline cell used a 10 percent change threshold because no 20 percent observations were available in that band.

Overnight declines produced negative average same-session long results in every price band reported.

Premarket change and volume as intensity

Premarket percent change and premarket volume were measured as intensity, then the question was whether that intensity changed the same-session outcome.

Those intensity readings compared 5 to 20 percent versus greater-than-20 percent overnight moves at volume of 10,000 or more, separately for names under 5 dollars and names above 10 dollars.

With overnight change held at 20 percent or more, volume was compared at 10,000 to 100,000 versus above 100,000, and one penny-stock advance cell also used volume above 500,000.

Weekday regimes and a reference index path

The identical gap rule was split by weekday and by the broader market cycle so one overnight move is not treated as if every calendar day is the same regime.

A weekday test shorted both overnight advances and declines in names above 6 dollars with premarket volume of 10,000 and compared those same-session shorts with a short of the open-to-close move in a broad composite index.

That index open-to-close change was used only as a reference path for the evaluation.

The weekday and gap-direction patterns were presented as provisional because the sample covered only a short window that coincided with a declining market cycle.