The first tick after a gap sets a trap

[Fairman]

The first tick after a gap sets a trap

After a quiet period or a weekend, the first tick sets the new price. The next few ticks often drift around it as liquidity returns. Strategies that treat the first tick as a reliable reference make poor decisions.

For example, a mean reversion rule that measures distance from a moving average will register a huge deviation after a gap. The signal fires. The price then converges not because of mean reversion but because the early quotes were erratic.

Similarly, a stop loss placed relative to the first tick may land in the wrong place.

Experienced scalpers ignore the first few minutes after a gap and let the book settle. Coded systems should include a warm-up period, such as skipping signals for 5 or 10 minutes, after any gap longer than a set size.

Backtests need the same logic, otherwise the results include trades that would never be taken live.

Does the strategy have a defined warm-up period after gaps and weekends?