Premium Market Analysis, Trader Education, Software, and Trading Strategies. Thirty Years Of Skin In The Game

Trading Strategies

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

Technical and quantitative analysis of major stock indexes and 34 popular ETFs are included in our Weekly Premium Reports. Market signals for position traders are offered by our premium Market Signals service

If you found this article interesting, you may follow this blog via RSS or Email, or in Twitter