Nasdaq (QQQ) Mean Reversion (Trading Strategy)
Last Updated on June 19, 2022
Below is a simple and easy trading strategy to implement in QQQ:
- IBS (internal bar strength) must be lower than 0.25.
- RSI (5) must be below 25.
- If 1 and 2 are fulfilled, go long at the close.
- 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):
Basically, any mean reversion has worked for QQQ. Will it hold up in the future? No one knows.
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How do you determine IBS
(c-l)/(h-l)
where is stoploss in this strategy? and whatif gap down happen on next day?
There is no stop-loss. The strategy is nothing more than what is written in the article. You might want to trade it another way, and that is fine. This is just an idea (for free).