Morning Reversal Strategy, by Bryan Babcock

Historical tests reveal the tendency of the major stock indices to revert to the previous day’s closing price in the early minutes of the trading session. This strategy takes its cue from that bit of market behavior. Art Agnelli and I wrote this article for Active Trader magazine in May 2003.

Finding a strategy that back-tests successfully is rare; finding one that is reproducible in
live trading is rarer still. The following intra-day strategy — the Morning Gap Reversal (MGR) — capitalizes on the major indices’ tendency to retrace toward the prior day’s close each morning. It has a high winning percentage tested in both bull and bear conditions — an important characteristic for any short-term strategy — and it is easy to execute. Each morning the opening price of an index or stock is higher or lower than the
prior day’s closing price. This price change is called the morning gap if it is above the previous day’s high (an “up gap”) or below the previous day’s low (a “down gap”). However, for simplicity, we will use “gap” to refer to the distance between the previous close and current open, regardless of whether or not the open falls within the previous day’s range (see Figure 1).

Click the link below for the full article

Morning Gap Reversal Babcock Agnelli