Sunday, December 25, 2016 10:55:55 AM
TESTING 2000 TO 2016
The backtest period extends from 12/01/2000 to 12/01/2016, which covers 16 years of data. I like this testing window because it includes two bear markets, two bull markets and a few periods of extreme volatility. In short, pretty much everything the market can throw at a trader is included.
The system looks for long positions when the 50-day SMA is above the 200-day SMA for the S&P 500 (golden cross). The system does not trade when the 50-day SMA is below the 200-day SMA (death cross). I tested with short positions and it is better to be out of the market when the long-term trend is down.
I am using SPY (the tradable benchmark) and the golden-cross system to compare against these mean-reversion systems. Buy-and-hold for SPY from 12/01/2000 to 12/01/2016 returned 5.22% per annum with a 55% max drawdown. In contrast, the golden cross system returned around 7% per annum with a 20% max drawdown.
System Rules
The testing focuses on SPY, QQQ and IJR with daily data. I am using the S&P SmallCap iShares (IJR) instead of the Russell 2000 iShares (IWM) because IJR has consistently outperformed IWM over the last 16 years. Commissions are $10 per trade and the initial portfolio is $100,000. The signals are based on end-of-day data (closing prices) and the buy-sell prices are based on the next day's open.
Why 5-day RSI and 30/70?
I decided to focus on 5-day RSI because it crosses the 30 and 70 levels quite often. The chart below shows IJR with 5-day, 10-day and 14-day RSI. Notice that RSI(5) crossed the 30/70 thresholds more than 20 times, RSI(10) crossed around 8 times and RSI(14) crossed just 5 times. I also found that the Maximum Drawdowns using RSI(10) and RSI(14) exceeded -20% most of the time. I am using 30/70 to generate signals because these levels are crossed more frequently than 25/75 or 20/80. The drawdowns were generally higher when using the latter levels.
12/9 IJR Mean-Reversion System
http://stockcharts.com/members/articles/arthurhill/2016/12/systemtrader---testing-and-tweaking-an-rsi-mean-reversion-system-for-spy-qqq-and-ijr.html
The backtest period extends from 12/01/2000 to 12/01/2016, which covers 16 years of data. I like this testing window because it includes two bear markets, two bull markets and a few periods of extreme volatility. In short, pretty much everything the market can throw at a trader is included.
The system looks for long positions when the 50-day SMA is above the 200-day SMA for the S&P 500 (golden cross). The system does not trade when the 50-day SMA is below the 200-day SMA (death cross). I tested with short positions and it is better to be out of the market when the long-term trend is down.
I am using SPY (the tradable benchmark) and the golden-cross system to compare against these mean-reversion systems. Buy-and-hold for SPY from 12/01/2000 to 12/01/2016 returned 5.22% per annum with a 55% max drawdown. In contrast, the golden cross system returned around 7% per annum with a 20% max drawdown.
System Rules
The testing focuses on SPY, QQQ and IJR with daily data. I am using the S&P SmallCap iShares (IJR) instead of the Russell 2000 iShares (IWM) because IJR has consistently outperformed IWM over the last 16 years. Commissions are $10 per trade and the initial portfolio is $100,000. The signals are based on end-of-day data (closing prices) and the buy-sell prices are based on the next day's open.
Why 5-day RSI and 30/70?
I decided to focus on 5-day RSI because it crosses the 30 and 70 levels quite often. The chart below shows IJR with 5-day, 10-day and 14-day RSI. Notice that RSI(5) crossed the 30/70 thresholds more than 20 times, RSI(10) crossed around 8 times and RSI(14) crossed just 5 times. I also found that the Maximum Drawdowns using RSI(10) and RSI(14) exceeded -20% most of the time. I am using 30/70 to generate signals because these levels are crossed more frequently than 25/75 or 20/80. The drawdowns were generally higher when using the latter levels.
12/9 IJR Mean-Reversion System
http://stockcharts.com/members/articles/arthurhill/2016/12/systemtrader---testing-and-tweaking-an-rsi-mean-reversion-system-for-spy-qqq-and-ijr.html
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