Intraday Momentum Strategy for SPY
An intraday momentum strategy attempts to capture short-term price movements that occur during the trading session. This research paper evaluates whether such strategies can generate consistent returns when applied to SPY, one of the most liquid exchange-traded funds tracking the S&P 500.
Unlike many academic studies that restrict trading to the final minutes of the session, this strategy enters positions whenever strong intraday momentum signals appear.
Detecting Intraday Momentum Signals
The strategy identifies abnormal demand and supply imbalances that occur during intraday price movements. When these signals appear, the model opens trend-following positions designed to capture short-term momentum.
This approach reflects techniques commonly used by active day traders while maintaining a systematic framework for testing.
Risk Management with Dynamic Trailing Stops
To control downside risk, the strategy uses dynamic trailing stops. These stops automatically adjust as prices move in the trader’s favor.
As a result, the strategy limits downside losses while allowing profitable trades to continue capturing larger momentum moves.
Strategy Performance (2007–2024)
The intraday momentum portfolio delivers strong performance over the sample period from 2007 to early 2024.
Key results include:
• Total return of 1,985% (net of costs)
• Annualized return of 19.6%
• Sharpe ratio of 1.33
These results demonstrate that intraday momentum strategies can generate attractive risk-adjusted returns.
Market Conditions and Volatility Regimes
To understand how market conditions influence performance, we analyze the strategy across different market volatility regimes.
The research also investigates whether dealer gamma imbalances help explain changes in strategy profitability.
Additional Statistical Tests
The paper also evaluates several additional factors that may influence performance, including:
• day-of-the-week effects
• comparisons with well-known technical trading patterns
• different market environments
These tests provide deeper insight into the behavior of intraday momentum strategies.
Transaction Costs and Slippage
Because the strategy operates at high frequency, trading costs can have a significant impact.
Therefore, the analysis incorporates commissions and slippage to evaluate whether the strategy remains profitable under realistic trading conditions.
Key Takeaways
- The intraday momentum strategy for SPY generates strong long-term returns.
- The strategy achieved 1,985% cumulative returns from 2007–2024.
- Dynamic trailing stops help control risk while preserving upside potential.
- The model remains profitable even after accounting for trading costs.