A while back I wrote about a day trading strategy in SPY. This one works pretty well on XLP as well, with some modifications:
The high and low divergence mean reversion trading strategy
The strategy is like this in plain English:
- Calculate a 25 day average of the (High minus Low – (H-L)). That is the “ATR”.
- Calculate the Low of the last 10 days.
- Calculate the (C-L)/(H-L) ratio every day (IBS).
- Calculate a band 2.5 times above the 10 day low using the average from point number 1 (ATR).
- If XLP closes above the band in number 4, and point 3 has a higher value than 0.8, then go short at the close.
- Exit on tomorrow’s close.
Vice versa for long except the value in number 3 must be below 0.33.
Test period from 2005 until 2013. Here are the results:
Long:
| Total % | #Fills | #Wins | Average | |||
| 53.57363 | 161 | 106 | 0.333 |
Profit curve:
Short:
| Total P/L | #Fills | #Wins | Average | |
| 49.03834 | 237 | 141 | 0.207 |
Equity curve:
By the way, this strategy has been horrible in 2013 on the short side (live trading).
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