3 Days Down Overnight Trading Strategy (S&P 500, Nasdaq, Rules, Performance)

3 Days Down Overnight Trading Strategy (S&P 500, Nasdaq, Rules, Performance, Video)

Here is a simple mean reversion twist in SPY that holds the S&P 500 just one day (from the close to the next day’s open or close). It’s an overnight trading strategy, the lowest-hanging fruit in the stock market (?).

This article was initially published in 2013, and it’s about time we updated it. We thus have plenty of out-of-sample data.

The 3-day down overnight trading strategy

In plain English, the trading rules of the strategy reads like this:

Trading Rules

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  1. SPY must be down three days in a row (from close to close).
  2. Entry on close on the 3rd down day.
  3. Exit the next day open.

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Here is the equity curve from 1993 for SPY, which tracks S&P 500, until today (backtest done in Amibroker):

There are 661 trades, and the average gain per trade is 0.13%. This might not sound much, but in a liquid asset like SPY, this might be tradeable even though slippage and commissions are not included in the backtest. Please read our article about