Rolling Returns for the SP-500

I just got back from a long vacation in Iceland (highly recommend visiting). As usual, when people discover what I do, they ask me about the markets. Several people were worried that the markets are too high. Then I read that the 20-year return of the SPX from 2001 to 2020 was way below the average 20-year return. My thinking was how could the massive run since 2009 not have gotten us above the average. As usual, I had to test it.

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Multi-day Limits for Mean Reversion

A reader recently suggested leaving the limit orders for a mean reversion trade on for a couple of days. Typically, these orders are good only for one day unless the stock sets up again. I did not think that this would help but as I always tell my consulting clients when they ask me if an idea will work or not, “I am always surprised but what works and what doesn’t, so I test everything and let the numbers decide.” My expectation would be higher exposure but will this lead to higher returns?

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Mean Reversion Entry: At Open vs. Intraday Pullback vs Confirmation

For the mean reversion strategies that I have created in the past and are trading now, they typically enter at the next day’s open or wait for a further pullback intraday before entering. My current mean reversion strategy, which enters on a limit down, was doing great until a few months ago when the performance started to slip. Looking at the missed trades and the trades taken, it seemed like the best trades would have been entering at open or waiting for some intraday confirmation.

Waiting for a pullback to take out the previous day’s high was very popular when I started trading. But my testing then showed that it was better to wait for a further intraday pullback to enter. Have the markets changed such that waiting for confirmation is better?

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Volume Positive Negative Indicator for Breakouts

Probably like a lot of you, I am an indicator junkie. Whenever I read about an indicator I have not tested and makes some sense, I got to try it out. Now, most of the time they turn out to not be useful for my strategies.

While reading the April 2021 Technical Analysis of Stocks & Commodities, I came across an article about Volume Positive Negative (VPN) Indicator for detecting high-volume breakouts. As I have written before, I rarely use volume in my strategies because I can never get it to work. Here was an indicator using volume, not a chance I would not test this.

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More ideas for ranking methods on a monthly S&P500 Stock Rotation Strategy

My last post on Different ranking methods for a monthly S&P500 Stock Rotation Strategy generated lots of emails on other ideas to try. Below are the results of these ideas

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Different ranking methods for a monthly S&P500 Stock Rotation Strategy

Recently for my own trading, I have been researching rotational strategies on both the weekly and monthly timeframes. The most common indicator that I use for ranking stocks is Rate of Change (ROC) of the closing price. I read about using Rate of Change on the EMA to rank stocks. I liked a small twist on the idea and wanted to know how it compared to what I am using.

Then this led me down another path of trying other ranking methods with an interesting result using historical volatility (HV) that I did not expect.

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Adding candlesticks to mean reversion setup in a portfolio

In my previous post, Adding candlesticks to mean reversion setup, we looked at how various candle patterns could help individual trades. Now we will see how those results translate to a portfolio. And why I usually only do portfolio level testing.

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Adding candlesticks to mean reversion setup

My preferred chart style is a candlestick chart but I have never investigated candlestick formations to see if they can help provide an edge in my trading. I recently ran into this blog post, Do Candlesticks Work? A Quantitative Test Of 23 Candlestick Formations, where he did his own investigation. Even better he shared the code for the formations in AmiBroker which would make it a lot easier. You can get my version of the code below.

Using the mean reversion strategy from my previous post, I wanted to know if any of the candlestick formations could improve the results.

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Avoiding Gap Trades

Should you avoid trades that have recently gapped? What if you are trading a mean reversion strategy and a stock has recently had a large gap? Is that a good trade to take? Avoid? Does it depend on the direction of the gap? I did research on this about 15 years ago. Let’s see what the current research says.

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Using Probability Cones to Test for Strategy Death

The most common question I get is how do you determine that a strategy is no longer working. It is also the question that I don’t have a good answer for. I have written several posts about this: Trading the Equity Curve, How to turn off a strategy using historical volatility, Broken Strategy or Market Change. During his How to detect a failing trading strategy presentation, Kevin Davey discusses how he uses probability cones to determine when to stop trading a strategy. I had not investigated this concept and was very intrigued.

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