Exhaustion Gaps In SPY

Last Updated on June 19, 2022 by Quantified Trading

Yesterday (11th of July) SPY gapped up over 1% after finishing strong over the previous days. Here is a potential strategy for the short side:

  1. Yesterday’s close must be at 10 day high (of the close, not the high).
  2. Today SPY gaps up at least 1.5 times the absolute value of the 25 day average (of the gaps).
  3. Go short at the close.
  4. Exit on tomorrow’s open (it works better on the open than the close).

In point 2 I have used 1.5 times simply to get enough fills. The higher the gap, the better the results (from 2005 until present):

P/L in % #fills Avg.
6.09 27 0.23

Here is the equity curve:

If we flip the strategy and do it on the long side we get this result:

P/L in % #fills Avg.
15.66 30 0.52

As we can see, not as stable on the long side!

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  • Hello Oddmund,

    I have question about your job. If I correct understand what you mentioned in previous comments you work as remote trader in proprietary firm. Am I right? If so, could you give some tips how to get this kind of job. Maybe you can recommend couple of firms?

    I can contact to you by email if you have time to give me some advice in this subject.

    Lukasz.

  • Hi, It’s not a “job”. I’m not hired. I can start and stop as I please, and from all practical purposes I’m a customer of Nevis Trading. I have traded for them and Echotrade, only. I have no idea about other firms. As long as you have some money, at least 5000 USD, there is no problem to find some place to trade.

    • Hi, you calculate percentage move from yesterdays close until open. If last close was at 100 and today open at 100.25, that means a gap up of 0.25%. Then you take this value the last 25 days and calculate the average (but using absolute values).