Christmas Gift for Loyal Readers

Here is a little Christmas "gift" for my loyal blog readers.  I will be returning to my system development posts after Christmas.  Thank you all for tuning in.

I have been extremely busy prior to the Christmas holidays so I haven't been able to write as many posts as I would like.  I wish to thank my readers for their patience.  As a reward for tuning in over the Christmas period I would like to show you a short term index trading trading strategy.  If you like it then please copy what you need as I will be deleting this in a few days.  I also ask that you do not distribute this strategy to anyone and remember where you got it from!  You won't find anything like it anywhere else.

I discovered this strategy about 13 years ago and did a few tests using put and call options.  It appeared to work relatively well but at the time the internet wasn't so popular and I couldn't watch the markets full time.  So I had put this strategy aside.  A couple of days ago I thought I would have another look at it and to my astonishment it still seems to work quite well.

I call this a "strategy" since it works on any raw stock market index.  But raw stock indices can't be traded directly.  With the advent of long and short ETFs (and leveraged ETFs) this strategy is much easier to trade than it would have been a few years ago.  So here we go...

I am using the S&P500 as my index.   You should be able to use other indices.  There is nothing special about the S&P 500.  The strategy is always holding a position, either long or short the index.  You will never change direction (long or short) more than once per day.  Here are the rules:

Trading rules have now been deleted.  If you have been a really good StockMarketStudent blog reader then send Santa a private EMAIL for more info.

Here are some updated longer term results for different Indices. Thank you again for reading my blog.

 

Have a Merry Christmas and Happy New Years everyone!

Comments

[Jorge Skverer]

Hi Steve,

Thanks for the gift. I am looking for a back testing program. What program did you use to back test this idea?

Best regards,

Jorge

[StockMarketStudent]

I am embarrassed to say that I downloaded the index from Yahoo finance and used an EXCEL spreadsheet to process the results. I assume you are looking for intra-day back testing? You could try AIQ. For end-of-day backtesting Portfolio123 is as good as anything. Otherwise Wealthlab.

[David]

I find this so fascinating! I read the whole blog from November to the latest last night until 3 am (after the family had gone or gone to bed.) I am dying to see what comes next. I'm on Portfolio123 and I'll send a more extensive message there but here I just wanted to say thanks! I appreciate your direct and fun style! David

[Charles123]

Steve,

I think I did a pretty good job of recreating what you did with the S&P500, but I did a version that went flat instead of shorting. Pretty impressive results. However, I went to Yahoo and dumped in the price data for the NIKKEI. Not good at all. BTW I ran this from the begging of 2000 for both the S&P500 and the NIKKEI. Let me know what you think.

[Squarespace]

Steve:

Thanks for this gift. I am trying to backtest also. You mentioned above - "For end-of-day backtesting Portfolio123 is as good as anything". How would you buy an index like S&P 500 in the P123 screener or a sim?

Did you include any trading costs in your spreadsheet? I don't see anything embarrassing about using Excel. It seems like a simple and easy way to look at the behavior of the strategy. Maybe you could post a copy of the spreadsheet?

Glenn