What Happens After an “Extraordinary” Big Fall in the S&P 500? (Volatility Trading Strategy)
What happens after an extraordinary big fall in SPY? Volatility trading strategies can be very profitable — both long and short.
Let’s find out and test by using some simple variables. To measure a big fall we use the average difference between the high and the low over the last 25 days.
We made the following trading rules:
Calculate the average H-L range over the last 25 days (in percent).
If the ETF falls more than 2 times this average, enter at the close.
Exit at tomorrow’s open, tomorrow’s close, or after 3 or 5 days.
Test period from 2005 until July 2013.
Below is the equity curve for SPY from close to open.
You can find more info about this trading strategy here:
https://www.quantifiedstrategies.com/what-happens-after-an-extraordinary-big-fall-in-sp/