Performance results of three popular SPY trend-following strategies plus our proprietary PSI5 strategy since January 2018.
Note that all four strategies are long-only. Performance is based on backtests from 01/02/2018 to 09/12/2019 and includes $0.01/share commission. No changes to parameters were made or any type of walk-forward optimization.
One reason our PSI5 strategy shows positive return in the time period considered is because it is proprietary. It is also not data-mined but based on a formula found in a text in probability theory that was adapted to describe price action dynamics. Click here for more details.
RSI2 shows the worst performance. In our opinion this is because a large number of aspiring traders and newsletter authors relied on this strategy extensively for building a career. There is this example of a chart pattern trader who later turned mean-reversion trader based on RSI2 and now is struggling trend-following amid rising volatility after the RSI2 losses in 2018.
The table below shows 2018 returns only:
The changes in price action dynamics that caused losses in 2018 for all four strategies are best described by our Momersion indicator that measures relative strength of momentum versus mean-reversion, in daily timeframe.
After making a new all-time low in 2016, Momersion started rising and by 2018 it was in neutral territory. Then momentum started increasing and reached a new all-time high beginning in August of this year. These moves between extremes have affected the performance of popular strategies.
The logic of the three popular mean-reversion strategies is given below for premium subscribers (premium articles subscription of higher required.)
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