Trade The Boring Consumer Stocks When They Open Down And Yesterday Was A Down Day – A Day Trading Strategy

Last Updated on April 18, 2023

This was a long headline, which probably won’t catch many readers. Anyway, the trading strategy has proven to perform well in the past but in the last years up to 2021, it has been rather flat. In trading, boring is good.

The strategy is tested on the ETF with the ticker code XLP.

A day trading strategy when yesterday was a down day and today is a gap down

In plain English the strategy is like this:

Fairly simple rules. Here is the result from 2005 until the present (2013):

P/L in% #trades #wins Avg
76.03854 225 147 0.34

The equity curve:

Perhaps worth noting is how well this strategy has performed in turbulent times: 2008 and during the EU-spectacle in late summer 2011. 2012 was rather poor.

The biggest holdings in XLP are the second most boring stocks, after utilities: PG, PM, KO, WMT, PEP, MO, CVS, CL, COST, and MDLZ.

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  • Hi Oddmund, nice work!
    I took it a step further with a parameter scan. Your parameters produce Sharpe of 1.5. Surprisingly, I could not get much more out of it even with optimization, going to sharpe of 1.6. Judging from the heatmap (see link), you’re in the lower left quadrant. There is an even ‘warmer’ spot in the upper right ;-).

    Take a look here:
    http://nbviewer.ipython.org/urls/dl.dropbox.com/u/11352905/notebooks/trading%2520with%2520python%2520example.ipynb

    Reply

    • Thanks, this strategy was not optimized at all. This strategy does not work particularly well in other ETFs, which has made several people beliving this is just coincidence. I disagree. You have to look at the industry and which stocks this is all about: dividend paying, “safe”, boring and “safe haven” stocks. They have a different patterns than other stocks.

      Reply

  • Thank you for your blog.
    >If XLP opens down more than 0.1% today, go long and exit on the close.
    Do you mean that if XLP opens with gap down more than 0.1% from prev close?

    Reply

      • I’ve tried with some other paramters and it gives a better result.

        >Yesterday must have been a down day of at least 0.25%.
        >If XLP opens down more than 0.1% today, go long and exit on the close.

        If prev move is not higer than 0.25%
        and if today move is not higer then 0.1%
        I receive such parameters accidentally when made mistake in code.
        I had to write prevMove < -0.25% instead of that I wrote prevMove<0.25%

        It's funny because it gives better result then original parameters.
        And I belive it's possible to receive better result if make testing with different paramteres.

        Reply

  • Hi Oddmund,
    Your system does work. But when you further optimize it; you may actually get better results for the opposite ((in line with Alexander’s results):
    1. Upday on the day before +1.0%
    2. Gap up at Open +0.1%
    3. Sell at Close on same day
    Net profit rises to 343% at a Sharpe Ratio of 2.68

    P/L 343%
    #trades 1016
    #wins 584
    Ave P/L 0.15%

    2005 – 2006 – 2007 – 2008 – 2009 -2010- 2011 – 2012 – 2013 YTD(10 Apr)
    12.9% 22.3% 20.0% 29.2% 18.4% 1.4% 13.6% 8.4% – 12.5%

    Buy and Hold between Jan 2005 and Jan 2013 yields more than 82% already.

    Best
    Bernd

    Reply

    • Hi AB_Trader,

      This is how I understand your rules:

      1. Yesterdays move must be less than 1%
      2. Today open less than +0.1%
      3. Go long at open, exit at close.

      Correct?

      Oddmund

      Reply

      • Hi Oddmund,
        Your system is quite interesting due to its simplicity. Also, the opposite works:
        1. Yesterday, XLP had an up day of at least +0.25%.
        2. Today, XLP opens up more than +0.1%
        3. Go short on the open and cover on the close.
        The opposite strategy has been in a drawdown since early 2009. But it works better than your original strategy, so far in 2013. The combination of the two strategies makes sense to me.

        Reply