The S&P 500 is a well-known index that includes the 500 largest U.S. companies. Traders and analysts often follow this index closely. Here, we look at two proven strategies for trading S&P 500 futures. Both of these strategies keep positions open for several sessions and use mean reversion levels for entry points.
The first strategy is quite simple. It uses the previous session's highs and lows as triggers. We buy when a 15-minute bar closes above the previous session's low. We sell when a 15-minute bar closes below the previous session's high. This strategy includes specific rules to filter trades, making it more efficient, especially on the short side. The stop loss is set at $1,300, while the take profit is set at $4,000.
Looking at the equity line, this strategy has performed impressively, even in out-of-sample periods for 6-7 years. The long side of this strategy has been consistently profitable and recently hit new equity peaks. Surprisingly, the short side is also very consistent. This is noteworthy since creating an effective short-side strategy in a generally rising market like the S&P 500 is challenging. The strategy has executed around 750 trades, with an average trade value of about $300. This amount covers trading costs, including slippage and commissions.
Annual returns for this strategy show profitability almost every year. There was a slight dip in 2019 and 2020, and 2021 saw negative performance. However, the strategy rebounded in 2022 with earnings of $15,000, $18,000 in 2023, and $3,000 in 2024 so far.
The second strategy also uses mean reversion but has a more advanced entry level. It calculates the current session's low and subtracts an additional amount to enter at a more oversold level. This amount is optimized during development. This strategy has different parameters for the long and short sides due to the S&P 500’s upward trend. The stop loss is set at $800, and the take profit is $3,000.
Evaluating the equity line, this strategy shows strong performance, even with a noticeable drawdown. The long side is very consistent, while the short side struggles but serves as a hedge during turbulent times, such as March 2020 and the 2008 recession. This strategy has executed about 1,800 trades, with an average trade value of around $140. This value is enough to cover trading costs.
Reviewing annual returns, the standout year is 2020, with a gain of $40,000, partly due to the short side. Subsequent years, except for 2022, were also profitable, with $33,000 in 2023. It will be interesting to see how this strategy performs for the rest of 2024.
These two mean-reverting strategies offer ways to profit in the S&P 500 market using different price levels. Having various strategies is essential for a balanced portfolio.
