Mondays and Fridays often turn out to be reversals when they move hard either way.
Today, we look at a reversal strategy that happens on Fridays. The results are very good with an average gain of 0.77% per trade.
(This article was originally published in June 2013. We updated the backtest on our Substack service.)
A reversal trading strategy in the S&P 500:
- Today is Friday.
- Yesterday (Thursday) was down more than -0.15% and today also more than -0.15%. 0.15% is used to have some wiggle room because you have to send the orders before the market closes.
- Exit at the close after two days (usually on Tuesdays).
The test period is from 2005 until February 2013:
| P/L | #Fills | Avg. | |
| 47.93 | 62.00 | 0.77 |
Here is the equity curve:
Doing the opposite (and short) we get this equity curve:
It does not work on other days. On Wednesdays, it pays off to go short.
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