When SPY Closes Near The Bottom of Its Range But Still Positive

During my early days as an investor/trader in the early 90’s I was told (in many books) that an up day that finishes near the low of the range is a bad sign. However, it’s always a good idea to test everything yourself. Rob Hanna did that in 2010 and I decided to check the results myself. Here is the strategy:

  • (c-l)/(h-l) must be lower than 0.1
  • Todays close must be higher than yesterday’s
  • If above conditions are met, entry on close
  • Exit on close after 3 days

Here is the result:

% #trades #wins Avg
10.69 14 12 0.76

Test period is from January 2005 until present. Here is the equity chart:

After Hannas study this setup has occurred 4 times until present with these trades: 0.17%, 0.9%, 0.7% and 1.52%. Few trades, but very profitable.

However, setting a higher max on the (c-l)/(h-l) criteria gives a bit more erratic picture. With this indicator set at max 0.33 we get this equity chart: