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Weekly Mean-Reversion Strategy For Futures

The strategy trades nine futures contracts in weekly mean-reversion mode based on a formula from a probability theory textbook.

This is a weekly long/short strategy for futures contracts that uses the PSI5 algo that is based on a formula from a text in probability to model price action. The PSI5  is available for sale to professional traders and hedge funds subject to acceptance of a non-disclosure agreement.

Strategy backtest settings

Strategy: Mean-reversion based on PSI5 algo
Strategy type: Long/short (exit and reverse)

Time-frame: Weekly (back adjusted futures data)
Futures markets: ES, GF, LE, BX, SX, PA, PL, DAX, C
Backtest period: 01/03/2000 – 2020/01/22
Commission per contract one way: $5
Initial capital: $100K
Position size : One contract per futures market
Maximum open positions: 9

Trade entry and exit: Open of next bar
Stop-Loss per position: 7%

Backtest results

The strategy performed well during dot com and 2008 bear markets offering equity market tail risk hedge. CAGR is 9.8% at 26.3% maximum drawdown.

The table below summarizes the performance of the strategy.

CAGR 9.8%
Max. DD -23.3%
Sharpe 0.72
Win rate 67%
Trades 1339
Long trades 759
Short trades 580
Avg. holding period (weeks) 3.5

The win rate is 67%. The high win rate of PSI5 algo in all markets and timeframes minimizes the probability of a large cumulative loss.

Stop-loss can be adjusted to satisfy different risk criteria. In the article we used 7%.

The PSI5 algo works well across equities and futures in both daily and weekly timeframes. Click here for more articles.

Charting and backtesting program: Amibroker

Data provider: Norgate Data

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