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

29 Pages Posted: 14 May 2024

See all articles by Carlo Zarattini

Carlo Zarattini

Concretum Research

Andrew Aziz

Peak Capital Trading; Bear Bull Traders

Andrea Barbon

University of St. Gallen; University of St.Gallen

Date Written: May 10, 2024

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&P500. 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

JEL Classification: C00, C10, C50, G00, G11

Suggested Citation

Zarattini, Carlo and Aziz, Andrew and Barbon, Andrea, Beat the Market: An Effective Intraday Momentum Strategy for S&P500 ETF (SPY) (May 10, 2024). Available at SSRN: https://ssrn.com/abstract=4824172 or http://dx.doi.org/10.2139/ssrn.4824172

Carlo Zarattini

Concretum Research

PIAZZA MOLINO NUOVO 8
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Switzerland

Andrew Aziz (Contact Author)

Peak Capital Trading ( email )

120 744 W Hastings
Vancouver, BC V6G 3K1
Canada

HOME PAGE: http://www.peakcapitaltrading.com

Bear Bull Traders ( email )

120 744 W Hastings
904
Vancouver, BC V6G 1A5
Canada

Andrea Barbon

University of St. Gallen ( email )

Bodanstrasse 8
SIAW-HSG
St.Gallen, 9000
Switzerland

HOME PAGE: http://www.abarbon.com

University of St.Gallen ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

HOME PAGE: http://www.abarbon.com

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