Nasdaq (QQQ) Mean Reversion

Last Updated on January 14, 2022 by Oddmund Groette

Below is a simple and easy trading strategy to implement in QQQ:

  1. IBS (internal bar strength) must be lower than 0.25.
  2. RSI (5) must be below 25.
  3. If 1 and 2 are fulfilled, go long at the close.
  4. Exit when close is higher than yesterday’s high (you can use higher than yesterday’s close as well – it has shorter holding periods and less drawdown).

The equity curve since January 2000 looks like this (starting with 100 000 in equity and allocating 100% of equity to every trade, ie. compounding, but taxes are not deducted):

Mean reversion has worked pretty well for Nasdaq/QQQ in any type of markets – bull or bear. Source: Amibroker.

Worth noting is that the profit factor is very high, drawdown is much less than buy and hold and CAGR of 12.34% is substantially above buy and hold’s 4.97% (excluding reinvested dividends):

Trading statistics for QQQ mean reversion. Source: Amibroker.

Basically, any mean reversion has worked for QQQ. Will it hold up in the future? No one knows.