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Monday Overnight Reversal Trading Strategy In The S&P 500 (Short strategy in 2024)

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:

  1. SPY closes higher than the previous 20-day close (not the 20-day high).
  2. Today is either Monday or Tuesday.
  3. Go short at the close.
  4. 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%.