The article includes an update of year-to-date performance of PSI5 mean-reversion strategy for S&P 500 stocks, Dow 30 stocks, SPY ETF and QQQ ETF.
The PSI5 mean-reversion strategy is not a data-mined but based on a formula from a text in probability theory that models price action. Memorial Day sale: 35% off. Sale ends June 2, 2021 at 5:00 PM ET. Contact us for details.
PSI5 strategy details
Time-frame: Daily (adjusted data)
Strategy type: Long-only
Backtest period: 01/04/2021 – 05/27/2021
Commission per share: $0.01 for SPY and QQQ, $0.005 for S&P 500 and Dow 30 stocks
Position size: Fully invested for SPY and QQQ, 50 top stocks for S&P 500 and 10 top stocks for Dow 30.
Position entry and exit: Open of next bar
S&P 500 stocks
Year-to-date return is 15.4% and maximum drawdown is -5.4%. There are 910 trades with 67.9% win rate.
Dow 30 stocks
Year-to-date return is 21.7% and maximum drawdown is -4.7%. There are 255 trades with 71.8% win rate.
Year-to-date return is 14.3% and maximum drawdown is -2.4%. There are 19 trades with 79% win rate.
Year-to-date return is 22.7% and maximum drawdown is -4.3%. There are 18 trades with 77.8% win rate.
SPY buy and hold
Year-to-date return is 13.5% and maximum drawdown is -4.1%.
About mean-reversion strategies
Mean-reversion strategies are risky because by design the signals go against the short-term trend. Stop-loss risk management cannot be used because it usually destroys profitability.
Mean-reversion strategies are suitable only for professional traders who understand risk and know how manage it well. Amateur traders can lose money even when using a profitable mean-reversion strategy because signals go against the short-term trend. Usually professionals allocate a small percentage of equity to mean-reversion strategies.
Charting and backtesting program: Amibroker
Data provider: Norgate Data
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