Thanks. I forgot a couple of other trade management points:
If price gaps open below my stoploss, I will exit on or as close to the open of that day as I can. This means sometimes my losses do exceed my risk per trade, but I have measured the frequency of that occurring, so I know roughly the associated expectancy
If prce gaps open above my entry level, I will enter on or as close to the open price of that day as I can, after adjusting the position sizing to maintain my total risk $
The basis for my strategy as I mentioned yesterday is backtesting over the 20 year period of 2001-2020 (for currently listed ASX300 stocks only, not all past stocks in the ASX300, so I am ignoring survivorship bias, which because the trades are short term, and there is not a strong change in performance between rising and falling markets, I am comfortable with that assumption).
The statistics and results from that backtesting are shown below. As you can see, the results are pretty consistent, with no negative return years (I consider that pretty unusual) even during 2008/9, which I attribute to (a) the way gaps down complement gaps up in terms of what type of market conditions they each perform well, and (b) the different durations (2, 3 & 13 weeks) and hence the max drawdown is also pretty good. In terms of performance by stock, 70% of all stocks in the sample returned a profit over the sample period (but that could be lower if I tested survivorship bias). And finally performance by Gap Open type, you can see why I weight the v2 type higher, due to its performance over a very short trade duration (2 weeks, which means probability of gap down losses is much lower).
