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Performance of Four SPY Mean Reversion Strategies Since January 2018

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.

Parameter RSI2 WR2 IBS PSI5
Net return -8.4% -4.8% -5.9% +3.6%
Max. DD -14.7% -17.5% -15.3% -13.0%

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:

2018 RSI2 WR2 IBS PSI5
Net return -8.5% -12.1% -12.3% -7.3%

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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Charting and backtesting program: Amibroker


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