Last Updated on June 19, 2022 by Quantified Trading
Below is a simple and easy trading strategy to implement in SPY or the S&P 500:
The classical mean reversion strategy in the S&P 500
In plain English the strategy reads like this:
- IBS (internal bar strength) must be lower than 0.25 (using daily bars).
- RSI (21) must be below 45.
- If 1 and 2 are fulfilled, go long at the close.
- Exit when close is higher than yesterday’s close.
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):
The stats are like this:
How does the strategy perform if we invert it, ie. reversing the parameters? This is how the equity line performs:
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