Last Updated on April 19, 2022 by Quantified Trading
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. Letæs 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:
This is the results for Tuesdays from 2005 until February 2013:
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