Four Consecutive Up Days – S&P 500 Momentum

Thursday last week, the 4th of November 2021, was the fourth day in a row with a higher close than the previous close in the S&P 500. How often does this happen?

Let’s test on the ETF SPY since its inception in 1993: It has happened 100 times, so it’s not rare. Is this a tradeable trading edge?

Today we test two trading ideas (we publish such trading ideas regularly on our Twitter profile and Substack – please follow if you are interested):

Trading idea number 1:

1. Today is Thursday.
2. The close is higher than the previous close for the fourth time in a row (all days of the week are thus positive).
3. If 1 and 2 are true, let’s but the close and sell Friday’s open.

Statistics:

• 100 trades
• 0.12% in average gain per trade.
• Profit factor: 2.15
• Win ratio: 56%

This is the equity curve:

If we optimize the trading strategy to include any day of the week we get the following results from the close that particular day and exit the next day’s open:

• Mondays: -0.07%
• Tuesdays: -0.02%
• Wednesdays: -0.03%
• Thursdays: 0.12%
• Fridays: -0.08%

Mean reversion seems to be in play except for Thursdays.

If we exit at the close instead of the open, the strategy performs worse.

Trading idea number 2:

Let’s test a second idea:

1. Today is the fourth day in a row where the close is higher than the previous close.
2. If bullet point 1 is true, we buy the close.
3. We exit on the close at a trading day when the close is lower than the open.

Again, entering on a Thursday gives the best result, but a tiny 0.02% gain. The poor result was expected because we sell on weakness. The average gain per trade is this:

• Mondays: -0.09%
• Tuesdays: -0.09%
• Wednesdays: -0.19%
• Thursdays: 0.02%
• Fridays: -0.25%

This is the equity curve for Fridays:

Both of these setups can probably be improved. Anyway, the main idea with backtesting is to test trading ideas and see if they work. We like to save our better ideas for your paying subscribers:

FAQ:

Is a four-day higher close in the S&P 500 a tradable trading edge?

While the occurrence of a four-day higher close is not rare, the question of it being a tradable trading edge is explored through two trading ideas in the provided content.

What is Trading Idea Number 1 based on Thursday closes?

Trading Idea Number 1 involves entering the market if Thursday marks the fourth consecutive day with a higher close. The strategy is to buy the close on Thursday and sell Friday’s open.

How does Trading Idea Number 2 differ from the first idea?

Trading Idea Number 2 involves buying the close on the fourth consecutive day of a higher close and exiting on the close of a trading day when the close is lower than the open.