A Mean Reversion Strategy for Semiconductors

ByOddmund Groette Trading strategies

Today, we show you a mean reversion strategy for Semiconductors.

Why semis?

Semiconductor stocks are among the most exciting, and volatile, corners of the market. They can trend strongly for long periods, but they also tend to overreact in the short term, creating sharp pullbacks and rebounds that systematic traders can exploit.

That is the idea behind A Mean Reversion Strategy for Semiconductors. Instead of chasing momentum after a big move, this strategy looks for temporary weakness in a strong and active sector, aiming to buy when pessimism has likely gone too far and exit when prices snap back.

The results are promising. The strategy is simple, rules-based, and focused on one of the market’s most important industries: semiconductors.

In this article, we’ll look at the logic behind the setup, the trading rules, and the historical performance to see why mean reversion can work so well in this sector.

A Mean Reversion Strategy for Semiconductors Results

As always, we made very specific rules and backtested them from SMH’s inception until today:

A Mean Reversion Strategy for Semiconductors
A Mean Reversion Strategy for Semiconductors

Performance

  • No. of trades: 124
  • Average gain per trade: 1.1%
  • Win ratio: 78%
  • Profit factor: 3.1
  • Annual returns (CAGR): 5.5%
  • Exposure/time in the market: 6%
  • Risk-adjusted return: 93% (CAGR divided by time spent in the market (0.06))
  • Max drawdown: 17% (buy and hold 85%)

Trading Rules

We used the following trading rules:

🔒 These trading rules are for members only.

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I’ve got an Msc from Heriot-Watt University, Edinburgh (1996), in addition a to a business administration degree the Norwegian School of Management (BI – 1994). Did my mandatory military service in between.

After university, I worked two years as an auditor (1996-1998).

I co-founded Aksjeforum.com in 1998/99 - one of the first websites about trading and investing in Norway. It was later acquired by Digi.no in 2001.

I have written 4 books about trading (in Norwegian). One of them has sold 30,000 copies, a record for a financial book in Norway.

From 2001 until 2018 full-time independent prop trader (Series 7 in 2001) and investor.

2018-today: Investor, writer, analyst.

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