Mean Reversion

A practical guide to ETF trading systems

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AFJ Garner
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Mean Reversion

Post by AFJ Garner »

Mean Reversion System

Those who do not own Trading Blox can test this system using a free on-line demonstration. Go to and enter “ETFDemo” as the license name and key.

In the short term many say that stocks mean revert. What goes down comes up again and vice versa.

Roll Period. This system allows you to choose a roll period in calendar days. The default is set to 7. This means that the portfolio will be rebalanced every 7 calendar days. Or 20, 60, 90 - whatever you set the parameter to.

Momentum Lookback. While the default is set to 7 trading days you should experiment with your own parameters. Each instruments return is calculated over the chosen look back period and then ranked worst to best. The worst performing stock is ranked 1.

Ranking Limit. If the portfolio contains 10 instruments and Ranking Limit is set to 5, on each re-allocation day the portfolio will be re-adjusted to invest in the worst 5 performing stocks.

Allocation. This is the percentage of the portfolio which will be invested in a single stock at the beginning of each period. If your ranking limit is set to 5 and your Allocation set to 5 then each of the 5 stocks will be allocated 5% of total equity giving total investment of 25%. The remaining 75% of the portfolio will earn interest as cash.

So, this is a mean reversion system. Suck it and see. Use different portfolios, parameters and time frames.

I give no investment advice and make no recommendation. Let me know if I have got something wrong.
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