A reader emailed me about testing a weekly mean reversion rotation strategy on S&P500 stocks. My first thought was, why had I not done this type of test before? The very first strategy that I worked on with Larry Connors was this type of strategy. The strategy I will be testing today is a simpler version and different universe but how well will it hold up?
Testing period is from 1/1/2007 to 10/31/2017.
- Stock is a member of the S&P500 index
- Stock is trading above its 200-day moving average
- The SP500 index is trading above its 200-day moving average
Each weekend, take all the stocks that have setup and then rank using one of the mean reversion methods below. Buy top 5 that are most sold off. Hold 1 week and sell. Then buy the ones that are now the most sold off