Mean Reversion System
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DESCRIPTION:

Date updated:12-13-2006

Basic mean reversion strategy. If a stock closes 10% or more below its 200 day moving average then BUY. After buying, then when the stock reaches 5% or less below its 200 day moving average, then SELL. No stop loss. The results are good and would've weatherede the worst of the bear market. However, we will present a version in a later post which has smoother volatility.

Results: Simulated on all Nasdaq 100 stocks from January 1, 2000 – December 10, 2006. Simulated using 3% of equity per trade.

Number of trades: 762 trades. 587 successes (77%).

Average return per trade: +2.54%

Starting Capital: $1,000,000
Ending Capital: $1,598,486

Simulated using Wealth Lab, a product of Fidelity
Code:



var Bar: integer;

enabletradenotes(false,true,true);
for Bar := 20 to BarCount - 1 do
begin
if not LastPositionActive then
{ Entry Rules }
begin
if priceclose(bar - 1) < SMA(bar - 2, #close, 200) * 0.9 then
buyatmarket(bar, '');
end
else
{ Exit Rules }
begin
if priceclose(bar - 1) > SMA(bar - 2, #close, 200) * 0.95 then
sellatclose(bar, lastposition, '');
end;
end;

symbol name last price % change open
  • +
  • SNDK
    Sandisk Corporati
  • $15.43
  • -3.86%
  • $16.00

Currently in an open trade started 10/23/06. 13.83% down. Historically, SNDK has had 20/23 successes with an average return per trade of 5.16%

People owning SNDK also tend to own: AAPLABTLAIRNALVRCHINACNETDRIV

  • +
  • FAST
    Fastenal Company
  • $36.00
  • -0.47%
  • $36.00

Currently in an opn trade that began 11/28 and is -2.78% down. Historically, FAST has had 18 out of 22 successful trades for an average return of 7.72%

People owning FAST also tend to own: HUBGNOVCOPEMRAATIAPOLBPOP

  • +
  • IVGN
    Ivgn
  • $0.00
  • N/A
  • $N/A

Currently in an open trade that began 10/30/06 is now 0.57% negative. IVGN has had 14 out of 15 successful trades for an average return of 9.8% per trade

People owning IVGN also tend to own: AGIXAVIDCTLMCVTXDSTIGLWINTV

  • +
  • CTXS
    Citrix Systems
  • $31.87
  • +0.95%
  • $31.56

CTXS is currently in an open trade that began 10/11/06 and is -0.25% down. Historically, CTXS has had 15/16 successful trades for an average return of 9.12% per trade.

People owning CTXS also tend to own: AAPLDISGOOGGRMNINTCLVLTMSFT

  • +
  • ESRX
    Express Scripts
  • $64.29
  • -0.25%
  • $63.26

ESRX is in an open trade which began on 10/10/06 and is dead flat on the trade at the moment. Historically, ESRX has had 13 out of 17 successful trades for an average return of 7.2%

People owning ESRX also tend to own: AKAMBROCOGTCOHCPRTCTSHDNA

  • +
  • BBBY
    Bed Bath & Beyond
  • $30.58
  • +2.00%
  • $29.75

BBBY has had 21 out of 22 prior successes. The last trade was from 8/28/06 to 9/12/06 for a 10.89% profit.

People owning BBBY also tend to own: CAKEEXPGEMSFTXOMGRMNVLO

  • +
  • ERTS
    Electronic Arts I
  • $23.10
  • -1.53%
  • $23.50

ERTS 23 successes out of 25 trades for an average return of 8.03% per trade

People owning ERTS also tend to own: ADPBACBSXCCLCMCSACSCOIGT

(Click image to see larger)

2000 -5%
2001 +20.45%
2002 -26.68%
2003 +32.67%
2004 +5.6%
2005 +20.72%
2006 +12.72%

09/28/2007 14:34 PM CDT Asked by davidck312
it looks like this system is meant to trade 3% of your account equity per stock so even if a stock goes to zero, which is not too likely, you would lose only 3 % of equity. That's not much risk at all.

If you want more protection then add a stop loss but remember that this system will trigger as a stock falls therefore it will most likely continue to fall and if you set your stop/loss to tight you will almost always sell before the stock rebounds.

05/08/2007 00:34 AM CDT Asked by Nathan2508
When you say this system is 77% sucessful does that mean that 23% of your stocks have gone to zero or that you are still holding on to them. It seems like setting a stop loss at some point would bring a better return but I could be completely wrong.

01/04/2007 20:28 PM CST Asked by wbianco
Couple of questions:

In the Nas 100 backtest, what was the average time a trade was open?

The only sell rule was the 95% of the 200 MA - no stop loss?

01/04/2007 10:55 AM CST Asked by Jack Francis
You can’t really trade this system with Wealth-Lab because you are executing orders on “bar” instead of “bar+1”. If you run this during trading hours bar will refer to yesterday so you can’t buy or sell as of bar. If you run this after the market closes, bar will refer to the current day but you won’t be able to trade because the markets are closed. IOW you should execute orders as of bar+1.

12/17/2006 20:04 PM CST Asked by JackG
Ok, so there is no lower limit to sell a stock? What if you buy a stock that has gone down and it keeps going down, will you follow it all the way to zero?

12/14/2006 17:24 PM CST Asked by paul simenauer
This appears to be an excellent trading system. However, if would be interesting if we could create a better risk/reward scenario by trading this system with options.

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