Beat the Market An Effective Intraday Momentum Strategy for S&P500 ETF (SPY)

Carlo Zarattini, Andrew Aziz and Andrea Barbon
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Carlo Zarattini: CONCRETUM RESEARCH
Andrew Aziz: Peak Capital Trading; Bear Bull Traders
Andrea Barbon: University of St. Gallen; University of St.Gallen

No 24-97, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: This paper investigates the profitability of a simple, yet effective intraday momentum strategy applied to SPY, one of the most liquid ETFs that tracks the S&P 500. Unlike the academic literature that typically limits trading to the last 30 minutes of the trading session, our model initiates trend-following positions as soon as there is an indication of abnormal demand/supply imbalance in the intraday price action. Building on trading techniques commonly used by active day traders, which have been discussed in our previous papers, we introduce the use of dynamic trailing stops to mitigate downside risks while allowing for unlimited upside potential. From 2007 to early 2024, the resulting intraday momentum portfolio achieved a total return of 1,985% (net of costs), an annualized return of 19.6%, and a Sharpe Ratio of 1.33. We conduct extensive statistical tests to examine whether the profitability of the strategy is affected by different market volatility regimes and whether the estimated gamma imbalance of dealers could predict changes in strategy profitability. We analyze the daily profitability of the intraday momentum strategy with respect to day-of-the-week effects. Additionally, we evaluate its performance against well-known technical daily patterns to understand its behavior under various market conditions. Given the short-term nature of the model, we also assess the impact of commissions and slippage on the overall profitability of the strategy.

Keywords: Day Trading; Day Trading Systems; Algo Trading; Momentum; Trend-Following; Intraday Momentum; Delta-Hedging (search for similar items in EconPapers)
JEL-codes: C00 C10 C50 G00 G11 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2024-05
New Economics Papers: this item is included in nep-fmk and nep-mst
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2497

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