I think this would be a viable strategy, but only if you bought at the close of days with extreme selling pressure.
This was pointed out in a Stocks, Futures and Options magazine article a long time ago. Obviously the author reads the magazine and stole the idea, unless it's the same author. SFO is free btw and a good magazine.
Still seems bogus to me. It tests to be slightly positive over the last 16 years, but just barely. Here is buying 1000 shrs of SPY at Close, Selling the next day at Open, penny a share commish (yeah you can do better now, but in the real world things always cost more, somehow...), no slippage. How close you could really get to the Close and Open with SPY I don't know, so results are likely worse than shown. Starting Capital $500,000.00 Ending Capital $570,400 Net Profit $70,400.13 Net Profit % 14.08% Annualized Gain % 0.83% Exposure 18.52% Number of Trades 4,030 Avg Profit/Loss $17.47 Avg Profit/Loss % 0.01% Avg Bars Held 1.00 Winning Trades 2,170 Winning % 53.85% Gross Profit $875,480.18 Avg Profit $403.45 Avg Profit % 0.38% Avg Bars Held 1.00 Max Consecutive 15 Losing Trades 1,860 Losing % 46.15% Avg Loss $-432.84 Avg Loss % -0.42% Avg Bars Held 1.00 Max Consecutive 9 Max Drawdown $-50,020.00 Max Drawdown % -8.15% Profit Factor 1.09 Sharpe Ratio 0.48
This is a much more rigorous, properly academic study, if that sorta thing floats yer boat... http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1004081
These research backtests are actually done by summer MBA interns while the senior staff is heading to the clubs and brothels