How To Make Money From The Close Until Tomorrow’s Open in SPY/S&P 500

This post have some simple suggestions on potential strategies from the close until tomorrows open in SPY (the test period is from October 2005 until present).  This post is  a summary of all several tests I have done on strategies with entry on close and exit on next day’s open (so far). The best strategy is at the end of this post and one I’ve been trading live for some months.

Here is the first strategy:

  1. SPY closes at new 20 day low
  2. Close is above 200 day moving average
  3. (c-l)/(h-l)<0.5
  4. Go long at the close, exit at tomorrow’s open

 

P/L in % #trades #wins Avg.
8.4 35 29 0.24

Thanks to Rob Hanna for this strategy.

The criteria about the close must be above 200 day moving average is important. The equity curve gets a lot worse without it.

My favourite interval is 5 days (in SPY). Here is a new twist:

  1. SPY closes at new 5 day low
  2. Close is above 200 day moving average
  3. (c-l)/(h-l) gives a ratio lower than 0.4
  4. Go long at the close, exit at tomorrow’s open

 

P/L in % #trades #wins Avg.
12.6 90 64 0.14

Most trades are below 0.4 (criteria 3) anyway. Here is the equity curve for this strategy:

 

This is a pretty nice equity curve! Profit factor is 2.6.

What happens if we turn it upside down and go short? It gets a lot more erratic. There is a small negative edge, but not tradeable. However, nice to know, though (not to go long these times).

I also tested this using  RSI(5):

  1. RSI(5) is below 25
  2. Close is above 200 day moving average
  3. (c-l)/(h-l) gives a ratio lower than 0.5
  4. Go long at the close, exit at tomorrow’s open

 

P/L in % #trades #wins Avg.
13.57 59 46 0.23

The equity curve is just as upward sloping as the one above and has profit factor about 3.8. Here is the annual return trading 490 000 USD per position:

 

Here is another twist which I belive is the best, considering it has more fills:

  1. (c-l)/(h-l)<0.5
  2. RSI(5)<30
  3. Close is lower than the 50 day moving average

 

P/L in % #trades #wins Avg.
36.55 168 109 0.23

 

This is quite impressive. Why? Probably because the market is short term oversold and get a quick bounce up from a bad day. Buying if close is above 50 day average is no good at all using these criterias. Quite a difference from the above strategies that went long if above 200 day moving average. If holding to the close instead of selling at the open, the total P/L increases to 80% but the equity curve is a lot more erratic. So buying on a 5 day low is a lot better for holding several days.

From previous research I know there is a good chance of filling the gap if SPY opens down and is short term oversold. So I put in a new twist: if SPY opens lower (the next day) than -0.1%, simply hold until the close (but exit at the open if opens higher than -0.1%). This boosts the strategy:

P/L in % #trades #wins Avg.
55.81 168 129 0.33

Here is the profit curve of this strategy:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The last years it has paid off to hold this position until next days close even on days when SPY opens up. But this was not the case earlier.

I think the last strategy is pretty good! Combined with others it can boost performance. Sometimes there is overlap with the 5 day low strategy, but not that often.