5 Day Low and Gap Down (Trading Insights)
Yesterday (on the 23rd) SPY closed below the previous day’s 5 day low. Even more, SPY gapped down and never traded over the previous day’s low. Some days back I wrote an article about a possible strategy to buy SPY when it closed below the previous day’s 5 day low. That strategy is in my opinion quite robust (and suggests buying on the close). However, what happens when it gaps down? Here are the results from 2005 to the present:
| Avg per trade | #trades | #wins | Annualized % | ||
| 1 day | 0.22 | 28 | 18 | 0.9 | |
| 3 days | -0.17 | 28 | 16 | -0.7 | |
| 5 days | 1.17 | 28 | 20 | 7.16 | |
| 10 days | 0.26 | 26 | 16 | 0.98 |
As you can see it’s very erratic, but also very few trades.
However, looking at my anatomy of gaps in SPY, fading a gap AFTER a gap down has been very good:
| Total in % | #fills | #wins | Avg | % long | % short | #fills long | #fills short |
| 5.21 | 33 | 30 | 0.158 | 3.21 | 2.00 | 12 | 21 |
Very good results, but not surprisingly it’s long which is best. All longs hit the target. A good example of reverting to the mean.
FAQ:
– What is the strategy when SPY closes below the previous day’s 5-day low?
The strategy involves considering SPY for trading when it closes below the previous day’s 5-day low.
– What are the results of trading SPY with a gap down after closing below the 5-day low?
The results show a mix of positive and negative returns over different time frames, but it’s notable that there are very few trades.
– How does the 5 Day Low and Gap Down strategy perform when SPY gaps down after closing below the 5-day low?
When SPY gaps down after this condition is met, the performance can be erratic. There are various trade outcomes over different time frames.