An Overnight Short Trading Strategy In The S&P 500

Last Updated on June 19, 2022 by Quantified Trading

Below is a potential short strategy in the S&P 500:

Short= C>Ref(C,-1) AND Ref(C,-1)>Ref(C,-2) AND Ref(C,-2)>Ref(C,-3) AND ADX(5)>35 AND RSI(2)>90

Description:

If the close is higher for the third time in a row, 5 day ADX is bigger than 35 and RSI(2) is bigger than 90, then go short on the close.

Exit/cover on tomorrow’s open.

This is the equity chart tested on SPY:

The initial capital is 100 000 and 200 shares of SPY traded throughout the test. No commissions and slippage.

Statistics:

The profit factor is 1.81.

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  • Hi Odd, I read your articles with great interest. I implemented your last strategy on ES future from June 2012 to today. I observed that RSI and ADX are almost equivalent to each other. I tried not to use alternatively one of them and introduced another param as the periods of RSI/ADX. The best results were not to use RSI, but only:
    Higher closes in a row = 4 (not 3 as in the article)
    ADX periods = 4 level = 40
    How do they perform on your data?

      • I’m showing $106,008 01JAN2001 to 30APR2019 4 days up and adx(4)>40. Wouldn’t trade either for the world given the low return, but it is enjoyable reading your posts!

      • Yes, for my dataset the average win value doubles (80€ without any fees, 95 trades, k-ratio 0.1365), the equity line is very linear and ascending, but I have data only from June 2012.

  • Great post Oddmund, the overnight edge is generally bullish. I think if you backtest the opposite rules on the long side, you would get far stronger results. Anyway I also trade many bearish patterns like this one. And David, yes you are right, it not enough trading it alone, but if you exploit other patterns, this pattern is a good tool for trading the overnight session, like I do at