VTVT: Testing my gap-up theory. Can algorithms predict gap-up stocks?
I've been trying to find a systematic way to identify stocks that gap up in the morning and at first, it seemed like an impossible goal. Recently, I have identified a few key characteristic of gap-up stocks and the goal of this post is to test my theory.
The hypothesis:
1) low float. It has to have less than 20M shares available for trading.
2) RSI values have to exceed 90 in either 1min, 3min, 5min, or 10min chart the day before.
3) Be under the 200MA in the 1minute chart. 200 periods for the 1min chart is roughly 3 1/2 hours.
4) Has to have the propensity to either gap up or gap down.
And finally, there are three reasons why a stock will gap up. One of the pathways is through momentum; as in people panic buying throughout the day and then into the after hours trading. The other pathway is after a day of panic selling. The last pathway is from news.
After this test, I will test some more. If VTVT ends up gapping down, it will prove that indicators are bad at predicting gap-ups but great at predicting gap-downs.
