Does Volume Really Matter In SPY?
Last Updated on June 11, 2021 by Oddmund Groette
I’m trading SPY, but until now I have not paid any attention to its volume until I saw this article. The result was interesting, but on second thoughts it makes sense. Why? Because a lot of SPY trading is hedging. I trade SPY every day in my day trading simply for hedging purposes. So when the markets turn ugly, I’m not surprised to see volume pick up (for hedging purposes). Unfortunately, we don’t know today’s volume until the trading day is finished.
What happens the next day after a day with below-average volume?
(All testing is from 2005 until present in this article)
The pink line is “buy and hold” and blue is the strategy. As we can see, nothing to gain using yesterday’s info on volume.
I tested a lot of different strategies but only one pattern seems to have any predictive power: If yesterday was a volume day below average, it pays to go with the direction of the opening the day after if it’s a “big” gap up (more than 0.6%, but the higher the opening the better the average):
The above graph shows the accumulated profits from open to close if yesterday was a below-average volume day and today’s open is above 0.6%.
This is an average of 0.22% per fill, quite good.
Hi Oddmund,
In your strategy, when do you get in (open or close) and when do you get out?
Thanks!
Yes, you’re right, info is missing. I have added text underneath the chart now.
Hi Oddmund
great post, where can you get the information showing that the open volume is .6% higher than the average volume for the SPY.
Thank You
Ron
Hi, quotes is from yahoo!finance (free). I guess i still have not made strategy clear 🙂 If yesterday had a volume lower than 50 day average, and SPY today opens at least 0.6% higher than yesterdays close, then go long at the open and exit at the close.
You can get the days cumulative volume throughout the day. In fact, it is in the Interactive Brokers data stream. In this way, you could trade just before the close based on todays total volume.
Hi,
Just to clarify, this is a long only strategy?
Thanks
Yes, long only.
What’s the winning rate?
Hi,
Win rate is 60%. However, this strategy has lost momentum over the last year.
the gap between today’s open and yesterday’s close is a so greet alpha in CTA ,but in mean-reversion system.