Hey guys. A while ago I asked the question of if and why there are greater gaps in the Australian indexes than the US, and I was told by Trembling Hand, no less, that it wasn't true and was simply a myth and he suggested I do backtesting to prove it. I didn't and don't have the ability to backtest thoroughly so I left the issue as it stood at the time. Original thread is here:
Well, the thing is, I couldn't see the logic then and I still can't see the logic now. Every time I look at the last 5 days of trading on Google Finance, I see what is CLEARLY much greater gaps in the All Ords when compared to the Dow (or any of the other US indexes for that matter). Not only are there greater gaps, but there is also far less daily movement. Here is the last 5 days trading of the All Ords and Dow side by side:
As I originally said this would make it much harder to day trade since, at least in the example above, half to 3/4 of the daily movements occur OVERNIGHT. My observation was that we tended to follow the lead of the US and Europe and the US but were scared to make any movements one way or the other until we saw what move they made next and hence the gaps when our markets open after their trading day.
Rather than just tell me how wrong I am again, it would be good to have a proper discussion about my observations and the chart I posted as an example.