The PSI5 mean-reversion strategy has outperformed on rick-adjusted basis the buy and hold total return performance of SPY since inception.
The PSI5 mean-reversion strategy is not data-mined but based on a formula from a text in probability theory. The logic of this strategy is available for sale to professional traders and hedge funds subject to acceptance of a non-disclosure agreement. The strategy has been also effective in trading portfolios of large cap stocks in both daily and weekly timeframes.
PSI5 strategy in weekly SPY ETF
Time-frame: Weekly (adjusted data)
Strategy type: Long-only
Market: SPY
Backtest period: 01/29/1993 – 12/03/2019
Commission per share: $0.01
Position size: Fully invested
Position entry and exit: Open of next bar
Bear market filter: Yes
Strategy performance
| Parameter | Strategy | Buy and Hold Total Return |
| CAGR | 8.1% | 9.7% |
| Max. DD | -14.7% | -54.6% |
| Sharpe | 0.94 | 0.58 |
| MAR | 0.55 | 0.18 |
| Win rate | 75.1% | – |
| Trades | 265 | – |
| Profit factor | 2.52 | – |
| Avg. bars in trades | 2.6 | – |
| Exposure | 30% | 100% |
The strategy has outperformed buy and hold on risk-adjusted basis. Maximum drawdown is less than 15% and win rate is more than 75%.
Equity curve with month returns table
The strategy backtest shows only two losing years in 2002 and 2011 with small negative returns. Year-to-date return (12/06/2019) is about 12%.
Charting and backtesting program: Amibroker
Data provider: Norgate Data
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