3 Down Days – And Gap Up?

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Here is a simple mean reversion twist in SPY:

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

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

There is 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).