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Trading at the open and at the close

I have read a number of posts about trading at the open and trading at the close. A couple of words of caution. Generally, it is a bad idea to trade at market open where volatility in single stocks is generally high. In fact, the Wall Street Journal highlights this practice today.

Trading at the close is another mistake that catches the novice quant. Many backtests using end of day data show great returns trading on the closing price, especially price reversal strategies. This practice puts quants competing with market makers, specialists, HFT firms and other liquidity providers. Unless your strategy is specifically designed to compete with these market participants you will be fooled by your backtests.

You want proof? Try it and let me know how it works out for you.