Mondays have turned out to be reversal days, at least on the long side after a fall on Mondays or the days leading up to Monday. Let’s test a reversal trading strategy:
In this article, we test a Monday overnight reversal trading strategy in the S&P 500: we go short on a Monday or Tuesday when the close is at a 20-day high. (Update: this strategy has not performed well after 2017.)
The Monday overnight reversal trading strategy:
In plain English, the strategy is described like this:
- SPY closes higher than the previous 20-day close (not the 20-day high).
- Today is either Monday or Tuesday.
- Go short at the close.
- Exit at tomorrow’s open.
This works for all days except for Thursdays. A pretty similar strategy is the Turnaround Tuesday strategy.
This is the results for Mondays from 2005 until February 2013:
| P/L % | #fills | #wins | Avg | |
| 8.68232 | 71 | 44 | 0.122286 |
This is the results for Tuesdays from 2005 until February 2013:
| P/L % | #fills | #wins | Avg | |
| 5.750533 | 70 | 40 | 0.08215 |
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FAQ:
– What is the Monday overnight reversal trading strategy in the S&P 500?
The Monday overnight reversal trading strategy involves going short on a Monday or Tuesday when the SPY (S&P 500 ETF) closes higher than the previous 20-day close, but not the 20-day high.
– What are the criteria for entering this trading strategy?
The strategy is applied when SPY closes higher than the previous 20-day close. It is implemented on either Monday or Tuesday, and the position is short at the close, with an exit at the following day’s open.
– What were the results for this strategy on Tuesdays during the same period?
On Tuesdays from 2005 to February 2013, the strategy generated a profit of 5.75%. There were 70 total fills, with 40 of them being winning trades. The average gain was around 0.08%.
