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PSI5 Strategy Q1 2022 Performance Update

This article includes the performance of the PSI5 strategy applied to SPY, QQQ ETFs, and Dow 30 stocks, for Q1 2022 and year-to-date. Long-term performance results are also included, from the inception of the ETFs and since 1993 for Dow 30 stocks.

The performance results are based on backtests. We list a number of important metrics for evaluating performance. For ETFs, we use all available data since inception and for Dow 30 stocks, data starting in 1993, while taking into account delistings available by Norgate Data. We highly recommend this data service (we do not have a referral arrangement with the company.)

Note that the majority of backtests presented on financial blogs and social media are over relatively short time horizons, where the strategies have apparently performed well. These strategies are selected after a large number of tests generate unsatisfactory performance. As a result, those strategies are the outcome of the dangerous practice of reusing data until something that performs well is observed, and for this reason, they suffer from data-mining bias.

On the contrary, in this blog we have written about the performance of the same strategies for several years, and we haven’t tried to generate new and fundamentally different ones to avoid data-mining bias. In addition, we use all the available data in the case of ETFs and long price series, with delistings for Dow 30 stocks and portfolio backtests.

Also note that most strategies shown on financial blogs and social media do not perform well when used with a portfolio of stocks. The main reason is that these strategies are over-fitted. The PSI5 mean-reversion strategy is not data-mined but based on a formula from a text in probability theory that models price action. The strategy is long-only because it takes advantage of the mean-reversion dynamic in price action for timing price action reversals.

A performance summary is included after the backtests below.

Backtest details for SPY and QQQ

Time-frame: Daily (adjusted data)
Strategy type: Long-only
Backtest period: Inception to 04/04/2022
Commission per share: $0.01
Position size: Fully invested
Position entry and exit: Open of next bar

SPY ETF performance (backtest)

Below is the equity curve with key statistics.

Below is a yearly performance chart from inception to 03/31/2022.

QQQ ETF performance (backtest)

Below is a yearly performance chart from inception to 03/31/2022.

Dow 30 performance (backtest)

Strategy: Dow 30 mean-reversion based on PSI5 algo
Time-frame: Daily (adjusted data)
Strategy type: Mean-reversion, long-only
Bear market filter: None (all signals taken even during corrections)
Universe: Dow 30 stocks (any delistings handled in backtest)
Maximum open positions: 30
Commission per share: $0.005
Position size per stock: Available equity/30
Trade entry: Open of next bar (no look-ahead bias)
Stop-loss: None
Benchmark: DIA ETF

Below is the equity curve with key statistics.

Below is a yearly performance chart from inception to 03/31/2022.

Performance summary table

CAGR 10.1% 10.4% 9.5% 9.6% 7.8% 8.6%
MDD -22.6% -55.2% -50.5% -83% -26% -51.8%
SHARPE 0.70 0.55 0.44 0.35 0.63 0.45
VOL 14.4% 18.7% 21.6% 27.6% 12.4% 19.1%
WIN% 67% 66.7% 66.7%
TRADES 1104 837 33076
Q1 2002 -0.8% -4.6% -4.7% -8.8% -3.9% -4.1%
YTD 0% -3.5% -3% -7% -3.6% -3.4%

* B&H is for QQQ ETF. The strategy backtest includes the dot com bear market.
** Inception date for DIA ETF is 1/20/1998

Click here for a list of strategies. 

Disclaimer: No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.

Charting and backtesting program: Amibroker. Data provider: Norgate Data

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