The 3-Day Down Overnight Trading Strategy In The S&P 500 (3 Down Days – And Gap Up?)

Last Updated on June 19, 2022

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). It’s an overnight trading strategy, the lowest hanging fruit in the stock market.

The 3-day down overnight trading strategy

In plain English the strategy reads like this:

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

Here is the equity curve from 2005 until the present (the pink line is for short but using 4 up days and then go short):

There are 200 fills for long and a respectable 0.18% gain per fill.

For EEM we have this equity curve for exactly the same conditions as for SPY:

The numbers for EEM are slightly better: 0.35% per trade (161 trades).

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  • Is there a reason most of your strategies are on ETFs? Do you not trade anything on individual stocks?

  • Hi Oddmund,

    Could you explain more in detail what the three steps of this strategy are please?

    What are the horizontal and vertical lines of the graphs are?

    Thanks

  • Hi Oddmund,

    I have seen you backtesting swing/overnight strategy on SPY that has historically < 200 trades. Do you think this is statistically significant enough?

    I believe you have executed some of them and could probably tell whether this is real edge or not.

  • Hi Oddmund,
    I’m trade similar strategy on individual stocks. Go long after 2 red day candles on MOC and cover on MOO.

  • Hi Oddmund,

    An American friend advised me to check out your page. I am amazed to find out that you are Norwegian like me 🙂 It just proves the international scope of trading I guess.

    I have a question regarding the 3dayDown strategy above. How would you put this i operation? Use minute data and for example, 30 min before close, as your closing price for the day-end? Another question, which broker and API do you use?

    Looking foreward to your next post,
    Best regards Snorre

  • Hi Oddmund,

    can you explain whats the way the put the MOC order since MOC order have to be put 15 minutes before you know if you are in the 3rd down day ¿¿??

    Best regards

    Alex