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Long-Short Mean-Reversion Strategy For SPY, QQQ and TLT

The long-short mean-reversion strategy for trading a portfolio consisting of SPY, QQQ, and TLT ETFs is based on price breakouts. Update: September 27, 2022.

The strategy rules are available below to All in One premium content subscribers with an annual subscription. Contact us for details. This offer may be terminated without prior notice.

The long-short variant of the price breakout strategy is based on the MRETF strategy included in this article. The same parameters were used and there was no optimization for the long-short part.

For all backtests in this article we used Norgate data. We highly recommend this data service (we do not have a referral arrangement with the company.)

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Backtest settings

Timeframe: Daily (adjusted data)
Markets: SPY, QQQ, TLT
Strategy type: Long-short mean-reversion
Maximum positions: 3
Position size:  equity/3
Commission: $0.005/share
All trades are executed at the open of the next bar
Backtest range: 01/2/2003 –09/27/2022

The strategy is not optimized for the highest annualized return.

Equity curve and comparison to SPY total return

Performance Summary

STRATEGY SPY BUY AND HOLD
CAGR 5.3% 9.4%
MDD -15.2% -55.2%
VOLATILITY 9.3% 19.0%
SHARPE 0.56 0.49
TRADES 962
LONG TRADES 722
SHORT TRADES 240
AVERAGE TRADE 0.33%
PROFIT FACTOR 1.45
WIN RATE 67.3%
AVG. BARS IN TRADE 8.2

The strategy CAGR is 5.3% versus 9.4% for buy and hold. The maximum drawdown of the strategy is 15.2% versus 55.2% for buy and hold. The Sharpe of the strategy is 0.56 versus 0.49 for buy and hold. The volatility of the strategy is less than half of that of buy and hold: 9.3% versus 19%. The average holding period is 8.2 days. The win rate is 67.3%.

Yearly Performance

There have been four down years in the test period, with 2005 down the most at -4.1%. In 2008 the strategy was up 6.7% and year-to-date it is up about 5.8%.

Two ETF positions may also be held. In this case, the CAGR increases but also the maximum drawdown and the volatility increase.

The rules of the strategy are available to All in One premium content subscribers withy an annual subscription, or through special offers. Contact us for details.

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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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