SPY Trading Strategy 2024 | ETF and Futures – (S&P 500 + ES) | Backtest

SPY Trading Strategy

The SPY trading strategy revolves around trading the exchange-traded fund that tracks the performance of the S&P 500 index.

SPY (SPDR S&P 500 Trust ETF (SPX)) is the oldest ETF still in existence. It started trading as long back as 1993 and has thus a long track record. SPY tracks the S&P 500 and you can thus use it both for short-term trading and long-term investing.

SPY is a great alternative to trading futures. Two good reasons for that are low slippage and commissions. Moreover, you can easily adjust the size to reflect your overall capital.

For example, the SPX futures contract may be too big for you, but the minimum size is one contract. Opposite, you can just buy an odd lot in SPY – one share (or more). Most brokers allow that and for very low commissions, like Interactive Brokers, for example.

We are trading SPY and the S&P 500 mini contract (ES), and we have since 2012 published many free trading strategies.

Why do we trade SPY and stocks? One of the reasons why we trade SPY (SPX), is that mean reversion trading strategies work well. It has not historically worked all the time, but over the last three decades, this type of trading has worked extremely well.

Another advantage is the overnight tailwind. Since SPY’s inception in 1993, practically all the gains have come from owning SPY from the close to the next morning. We have covered this in a separate article about night trading strategies.

Below are some of the free SPY trading strategies we have published over the years. Additionally, we offer our best trading edges as a subscription service where we send you one potential strategy (idea) every month. 

SPY trading strategies (LIST)

Here you can find all of our backtested SPY trading strategies.

About SPY (ETF)

SPY (SPDR® S&P 500® ETF Trust) is the world’s largest exchange-traded fund (ETF), tracking the performance of the S&P 500® Index. It is a popular choice for investors who want to get broad exposure to the US stock market with a low expense ratio.

Image of SPY ETF symbol

Key Features of SPY:

  • Tracks the S&P 500® Index: SPY holds a diversified portfolio of stocks that represent the largest 500 companies listed on US exchanges. This gives investors broad exposure to the US stock market.

  • Low Expense Ratio: SPY has an expense ratio of just 0.09%, which is one of the lowest in the ETF industry. This means that investors keep more of their returns.

  • High Liquidity: SPY is one of the most actively traded ETFs in the world. This means that investors can buy and sell shares easily without affecting the price.

  • Tax Efficiency: SPY is a passively managed ETF that tracks an index. This means that it does not distribute capital gains, which can be advantageous for taxable accounts.

Benefits of Investing in SPY:

  • Diversification: SPY gives investors exposure to a wide range of industries and companies, which helps to reduce risk.

  • Accessibility: SPY is an easy and affordable way to invest in the US stock market.

  • Transparency: SPY is a transparent investment, which means that investors can easily see how its holdings are allocated.

Drawbacks of Investing in SPY:

  • Correlation with the Market: SPY is highly correlated with the overall stock market. This means that its price will go up when the market is up and down when the market is down.

  • Volatility: The stock market is volatile, which means that SPY’s price can fluctuate significantly.

Overall, SPY is a good investment for investors who want to get broad exposure to the US stock market with a low expense ratio and high liquidity. However, it is important to understand the risks involved before investing in SPY.

The SPY (SPDR S&P 500 ETF Trust) trading strategy revolves around trading the exchange-traded fund that tracks the performance of the S&P 500 index. Here are some general points about a typical SPY trading strategy:

  1. Market Exposure:

    • SPY provides broad exposure to the U.S. stock market by tracking the S&P 500, comprising large-cap stocks from various sectors.
  2. Liquidity:

    • SPY is highly liquid, making it a preferred choice for traders due to narrow bid-ask spreads and ample trading volume.
  3. Day Trading:

    • Traders often engage in day trading SPY, taking advantage of intraday price movements. Technical analysis and chart patterns play a crucial role in these strategies.
  4. Trend Following:

    • Trend-following strategies involve identifying and riding trends in the S&P 500 index. Traders may use moving averages or trendlines to make informed buy or sell decisions.
  5. Options Trading:

    • Options on SPY are actively traded, allowing for various options strategies. This includes covered calls, protective puts, and more complex strategies like iron condors or straddles.
  6. News and Economic Indicators:

    • Traders closely monitor economic indicators and news affecting the overall market as they can impact SPY prices. Events such as economic data releases, Fed announcements, or geopolitical events can influence trading decisions.
  7. Risk Management:

    • Given the volatility of the stock market, effective risk management is crucial. Traders often set stop-loss orders and define risk-reward ratios to protect their capital.
  8. Diversification:

    • Some investors use SPY as part of a diversified portfolio to gain exposure to the overall market. This can serve as a long-term investment strategy.
  9. Sector Rotation:

    • Traders may rotate in and out of different sectors within the S&P 500 based on economic conditions and sector performance, adjusting their SPY positions accordingly.
  10. Macroeconomic Analysis:

  • Understanding broader economic trends and macroeconomic indicators can aid in anticipating potential market movements, influencing SPY trading decisions.