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# SPY/S&P 500: Yesterday Was A Down Day And Today Opens Down

February 26, 2013 | Posted by Oddmund Grotte under daytrading |

Some weeks ago I wrote about a potential daytrading strategy in XLP. This is the similar test done in SPY:

- Yesterday the formula (c-l)/(h-l) must have been lower than 0.1.
- Today SPY opens down.

If these two simple criteria are fulfilled, then go long at the open and hold until close.

This is the result from 2005 until present:

P/L | #Fills | Avg. | |

19.75% | 84.00 | 0.24% |

Here is the equity curve:

Hello Oddmund

Thank you for yet another interesting post. I have noticed that you several times use the formula (c-l)/(h-l). Could you please explain what information the result gives you about a given period?

Best regards,

Juksefant

Hm, I’m not sure what you mean. Can you please elaborate?

What I mean is what information do you get from the mentioned formula? Does a low value indicate a momentum in any direction? And why must the value be lower than 0.1? Is this a value you have retrieved from backtesting this specific strategy, or is it a more general indication? I am spending quite some time trying to develop an easy set-and-forget trading system, and I find your formula very interesting even if I don’t quite understand how or when to use it. I hope this make my question clearer.

The formula is (close-low)/(high-low). The lower the value, the more return next day. This works pretty much on every ETF. This is a mean reversion formula.Buy on low values, sell on high values, but short is of course much tougher. The value 0.1 is derived from backtesting. I would suggest youo test this in Excel to get a better grasp of it. To see it yourself is much better!