Even Vs. Odd Days Trading Strategy (S&P 500 Backtest Findings With Trading Rules)

The even vs. odd days trading strategy shows that most of the gains in the S&P 500 come on even days, not on odd days. It’s a rather peculiar effect but most likely the result of chance. Can we develop a trading strategy based on odd and even days?

This article shows a trading strategy that is only invested on odd calendar days and one other strategy that is only invested on even calendar days. Most likely, this is not a tradeable trading strategy, but nevertheless, one type of calendar day shows a strong outperformance compared to the other type of calendar day.

Key Takeaways

• S&P 500 gains concentrate mostly on even days
• Odd versus even days show unusual performance differences
• Even-day holding significantly outperforms odd-day holding
• Most even-day outperformance occurred after 2008 crisis
• Odd days show consistently weaker market returns
• Even days perform better from open to close
• Calendar-day effects likely driven by randomness

Odd vs. even days

Presumably, the Greeks placed numbers that couldn’t be arranged in two rows as odd numbers. Thus, odd numbers can’t be put into pairs. If you have five candies and want to split them into two equal parts, you obviously can’t do it unless you split one of them in two.

Opposite, even numbers are easily divided into two equal parts. If you have 16 candies, you split them into two parts of eight each.

In this article, the odd days are the following calendar days:

1, 3, 5, 7, 9, 11, 13, 15, 17, 19, 21, 23, 25, 27, 29, 31

The even days are the following calendar days:

2, 4, 6, 8, 10, 12, 14, 16, 18, 20, 22, 24, 26, 28, 30

The performance of odd vs. even days in the S&P 500

We test the following trading strategy:

At the close of even days, we buy the S&P 500 and hold it until the close of the following odd day. This is the performance of odd days.

At the close of odd days, we buy the S&P 500 and hold it until the close of the following even day. This is the performance of even days.

If we invest 100 000 into each strategy in 1993 and let it compound until today, we get these two equity curves:

The red line (strategy 1) is the strategy of owning the S&P only during even days, and the blue line is owning the S&P 500 only during odd days.

As you can see, the performance is substantially different. However, most of the outperformance of the even days happened from the GFC in 2008/09.

Let’s change the backtest, and instead, we exit on the open, and not the close. For example, we buy the close on an odd day and sell at the open on the event day, thus finding the performance on even days until the open. We get the following equity curve:

This backtest shows that odd days have higher returns to the open.

This means that the day trades on even days are much better. Let’s make a final backtest where we look at the performance from the open to the close on the same day:

Clearly, odd days have performed poorly at all times, while even days have fared better.

FAQ:

What is the odd vs. even days trading strategy?

The odd vs. even days trading strategy involves buying and holding the S&P 500 based on the type of calendar day (odd or even). On odd days, the strategy buys and holds until the close of the following even day, and vice versa.

How is the performance of odd vs. even days measured in the S&P 500?

The performance is measured by buying the S&P 500 at the close of even days and holding until the close of the following odd day (and vice versa). The equity curves of these strategies show the historical performance of odd and even days in the S&P 500.

What do the equity curves reveal about the odd vs. even days strategy?

The equity curves illustrate the substantial performance difference between owning the S&P 500 on odd days versus even days. The red line represents the strategy of owning the S&P 500 during even days, and the blue line represents ownership during odd days.