In a show of strength, our PSI5 mean-reversion strategy has recovered from 2018 losses and year-to-date performance after commissions is about 8%. Since 2008, the strategy has outperformed S&P 500 total return by about 120 basis points with superior risk-adjusted returns.
The PSI 5 strategy is based on a formula from a text on probability theory that models price action. We use it for both daily and weekly mean-reversion strategies.
For daily mean-reversion we use SPY and also SSO (2x SPY).
All four mean-reversion strategies we track had negative performance in 2018 as this was a difficult year for quantitative trading. In the daily timeframe, PSI5 had the smallest loss of 7%. However, in 2018, in weekly timeframe the strategy gained 2.7% in SPY and 9.3% when trading Dow 30 stocks. Click here for details and scroll down to 2018 performance table. The weekly strategy in SPY is called MRSPYW and for Dow 30 it is called MRDOWW. Year-to-date, MRSPYW is up 7.7% and MRDOWW is slightly positive. Click here for more details about the strategy for trading Dow 30 stocks.
Below are the equity performance of the strategy in SPY since 2008 and a monthly returns table.
The strategy fell 7% in 2018 but recently has recovered with year-to-date return at 7.9% including commission of $0.01/share (performance based on backtest.)
We are confident this strategy will retain its robustness in the future because it is not disclosed to public as the other three strategies we track, it is not data-mined and more importantly, it is based on a sound foundation.
Detailed weekly mean-reversion entry and exit signals for SPY and Dow 30 stocks based on this strategy are included in Weekly Signals.
Contact us if you have any questions.
Disclaimer: All performance results are based on backtests. No part of the analysis in this blog constitutes trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.
All charts were created with Amibroker