S&P 500 Trading - Midweek Reversal Strategy

Stock Index Strategies

This season, we’ll show you how to apply automated trading strategies to the stock index market. Index futures trading has become incredibly popular, and like any market, it offers plenty of opportunities to automate successful trading strategies with Profectus AI.
In this episode, we are going to build a surprisingly simple reversal strategy for the S&P 500 index. The idea is to look for specific moments during the week when the price drops below the threshold, but where the longer-term bullish trend is still in place. This creates a short-term buying opportunity with a very high strike rate.

This strategy is a mean reversion strategy. More specifically, we call it the Midweek Reversal Strategy.

Disclaimer: Templates are for educational purposes only!

👉 Get the S&P 500 Midweek Reversal Strategy Template → Template Link

This template is designed to run on the 4-hour timeframe.

You might also want to watch the full YouTube video on this strategy here to get the full explanation of the strategy.

What Is The Midweek Reversal Strategy?

The idea of the Midweek Reversal Strategy is to look for moments where the market has moved lower in the middle of the week, and take advantage of a potential recovery move.
For this strategy, we focus on the S&P 500 and only look for buy trades. The logic is based on the idea that stock indices often recover after periods of weakness, especially when the broader market has sold off into a short-term oversold condition.
For this particular strategy we will be building together in a bit, we look at 2 things to determine whether the market is in an interesting reversal area:

1. The previous daily candle closed below the 40-period EMA
2. The previous 4-hour candle closed bearish

These are 2 very simple indications that the market has moved lower and may be interesting for a short-term reversal setup.

The most interesting part of this strategy is the trade management. The power of the strategy comes from the fact that short term corrections are often quickly recovered. The recovery often takes place in the second half of the week (from Wednesday on, mostly). For that reason, we are not working with a stop-loss and take-profit level, but purely with a time-based exit. The trade closes after 20 hours, regardless of the result, and that’s where the edge comes from.

Now, let’s get into building this midweek reversal strategy.

The S&P 500 Midweek Reversal Strategy

The S&P 500 Midweek Reversal Strategy is built to buy short-term weakness in the S&P 500. Instead of buying when price is already moving strongly higher, the strategy waits until the market has pulled back.

Let’s go through the exact strategy rules step-by-step:

1. Only trade from Monday to Thursday.
2. Check if the previous daily candle closes below the 40-period EMA.
3. Check if the previous 4-hour candle closes bearish.
4. We check that there is no high-impact news nearby.
5. We check that there are no open buy trades.
6. We open a buy trade.
7. The trade is automatically closed after 20 hours.
8. If the open trade is floating more than 1.5% in profit, we close 25% of the trade. We do this only once.

Very easy to build and very clear rules to follow.

Building the S&P 500 Midweek Reversal Strategy in Profectus AI

For this build, we are not using any variables. The strategy is mostly built with trade rules, a news filter, a count trades block, and a simple trade management module. Let’s build it together:

1. Start with a Run At Time block and attach it to a Run In Session block. In the Run In Session block, make sure the strategy is only active from Monday to Thursday.
   
   
2. Check the daily close below the 40 EMA. Connect a Trade Rule block and check:
   
   Candle Close Candle ID 1, Daily Timeframe < Moving Average Period 40, Daily Timeframe
   
   
3. Check the bearish 4-hour candle. Connect another Trade Rule block and check:
   
   Candle Close Candle ID 1, 4-Hour Timeframe < Candle Open Candle ID 1, 4-Hour Timeframe
   
   
4. Check if there is news coming soon. Connect the News Filter block and set the desired window where you don’t want to open new trades around high-impact news. By default, this strategy avoids opening trades 10 minutes before high-impact news.
   
   
5. Check for no open trades. Connect a Count Trades block and put:
   
   Trade Type = Buy trades
   Open trades = 0
   Open orders = 0
   
   
6. Buy Now. Connect the Buy Now block and use the following settings:
   
   Money Management = 0.1 fixed volume by default
   Stop Loss = None
   Take Profit = None
   Auto-Close Trade = Relative time, 20 hours after opening
   
   
7. Add the partial close module. In a new tree, start with a Select Trades block and select the open buy trades.
   
   
8. Check the floating profit. Connect a Check Profit/Loss block and check:
   
   Floating profit percentage of balance > 1.5%
   
   
9. Make sure it only happens once per trade. Connect a Once Per Trade block.
   
   
10. Close part of the trade. Connect a Close Trades block and close:

Close percentage = 25%

And that’s it. One of the easier strategies to build and with very simple reasoning. 

Get Access to the S&P 500 Midweek Reversal Strategy

Want to see how the S&P 500 Midweek Reversal Strategy works when fully automated?
Access the automation template used to turn this trading concept into a deployable MQ5 trading bot inside Profectus AI. The template includes the daily EMA filter, the 4-hour bearish candle rule, the news filter, the buy entry logic, the 20-hour auto-close, and the partial close module.

It’s ready for testing!

You can test it on different stock indices such as NASDAQ, adjust the moving average period, change the trading days, add a stop loss, add a take profit, or change the partial profit-taking rule.

Disclaimer: Templates are for educational purposes only!

👉 Get the S&P 500 Midweek Reversal Strategy Template → Template Link

This template is designed to run on the 4-hour timeframe.

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