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I stumbled upon a mean reversion strategy that shows some potential.
I will get straight into it.
# Entry condition
close < (10 days high - 2.5 * (25 days average high - 25 days average low) and
ibs < 0.3
# Explanation of entry
Today's close should be less than the highest high of last 10 bars minus 2.5 times the last 25 days average stock movement.
Additionally, IBS should be below 0.3.
What's IBS? not irritable bowel syndrome
IBS (Internal Bar Strength) = `(close - low) / (high - low)`
This gives a 0–1 range. 0 means close = low (weakness), 1 means close = high (strength). Below 0.3 = closed in the bottom 30% of the day's range.
# Exit
`close > yesterday's high`
yep very simple
# Backtest
I'm testing this on multiple instruments, the parameters are
* Timeframe - Daily
* Ticker - **SPY**
* Slippage - 0.01
* commission - 0.01
* Duration - 2006 march till 2026 march
* Capital - 100,000
**Core Returns**
* Total Return: 334.84%
* CAGR: 7.75%
* Profit Factor: 2.02
* Win Rate: 75.00% (180 Wins / 60 Losses)
**Risk Metrics**
* Max Drawdown: 15.26%
* Calmar Ratio: 0.51
* Sharpe Ratio: 0.46
* Sortino Ratio: 0.81
* Avg Profit: $3,677.39
* Avg Loss: -$5,451.58
**Position & Efficiency**
* Time Invested: 21.02%
* Avg Positions Held: 0.18
* Avg Hold Time: 5.4 days
* Longest Trade: 29.0 days
* Shortest Trade: 1.0 day
**Execution & Friction**
* Total Trades: 240
* Total Costs (Fees/Slippage): $11,870.20
* Initial Capital: $100,000
* Final Capital: $434,835.64
https://preview.redd.it/enx9sela9vmg1.png?width=1719&format=png&auto=webp&s=cb22ae1de8711730df00899f94df99654aeabeec
https://preview.redd.it/69066kzf9vmg1.png?width=1720&format=png&auto=webp&s=3580f044bc9db18ca2d12a69c49b9ce822aac00a
75% win rate with only 15% max drawdown is really good. The 7.75% CAGR isn't crazy good, but you're only in the market 21% of the time. The remaining 79% of time could run a different strategy or the same strategy on other instruments.
# Testing with ticker QQQ (2011 - 2026)
**Core Returns**
* Total Return: 265.74%
* CAGR: 9.18%
* Profit Factor: 2.15
* Win Rate: 70.74% (133 Wins / 55 Losses)
**Risk Metrics**
* Max Drawdown: 11.92%
* Calmar Ratio: 0.77
* Sharpe Ratio: 0.42
* Sortino Ratio: 0.79
* Avg Profit: $3,730.40
* Avg Loss: -$4,189.13
**Position & Efficiency**
* Time Invested: 16.41%
* Avg Positions Held: 0.14
* Avg Hold Time: 5.4 days
* Longest Trade: 19.0 days
* Shortest Trade: 1.0 day
**Execution & Friction**
* Total Trades: 188
* Total Costs (Fees/Slippage): $7,696.67
* Initial Capital: $100,000
* Final Capital: $365,740.47
https://preview.redd.it/fcw34obj9vmg1.png?width=1719&format=png&auto=webp&s=df9db29f00b394305d98ef03d661b14ce0b4fa6c
https://preview.redd.it/3gejlt9m9vmg1.png?width=1716&format=png&auto=webp&s=98d8691554bed9159a26c051322b410f0f0f0522
\~70% win rate holds just like it was with SPY, and a CAGR of \~9% is not bad at all. But here too the time invested is very less, only 16% of the time the capital was utilized.
# Testing with a couple of stocks, AAPL and ABNB
# AAPL
**Core Returns**
* Total Return: 809.61%
* CAGR: 11.77%
* Profit Factor: 2.07
* Win Rate: 70.27% (182 Wins / 77 Losses)
**Risk Metrics**
* Max Drawdown: 29.56%
* Calmar Ratio: 0.40
* Sharpe Ratio: 0.67
* Sortino Ratio: 1.07
* Avg Profit: $8,601.29
* Avg Loss: -$9,815.87
**Position & Efficiency**
* Time Invested: 25.18%
* Avg Positions Held: 0.22
* Avg Hold Time: 6.1 days
* Longest Trade: 27.0 days
* Shortest Trade: 1.0 day
**Execution & Friction**
* Total Trades: 259
* Total Costs (Fees/Slippage): $19,488.97
* Initial Capital: $100,000
* Final Capital: $909,613.32
https://preview.redd.it/n157e5zq9vmg1.png?width=1719&format=png&auto=webp&s=fd281ff72208830827e68999dcd2c0a27372b878
https://preview.redd.it/kdbm85tt9vmg1.png?width=1717&format=png&auto=webp&s=23654637419d976c7c197426d1dc0c996604d4a4
Interestingly, the \~70% win rate holds here too, with only 25% time invested. The 11.77% CAGR looks great, but note the 29.56% max drawdown that is nearly double what we saw with SPY.
# ABNB
**Core Returns**
* Total Return: 26.35%
* CAGR: 4.74%
* Profit Factor: 1.16
* Win Rate: 56.52% (39 Wins / 30 Losses)
**Risk Metrics**
* Max Drawdown: 28.53%
* Calmar Ratio: 0.17
* Sharpe Ratio: 0.00
* Sortino Ratio: 0.00
* Avg Profit: $4,868.17
* Avg Loss: -$5,450.30
**Position & Efficiency**
* Time Invested: 7.28%
* Avg Positions Held: 0.06
* Avg Hold Time: 6.7 days
* Longest Trade: 28.0 days
* Shortest Trade: 1.0 day
**Execution & Friction**
* Total Trades: 69
* Total Costs (Fees/Slippage): $1,705.92
* Initial Capital: $100,000
* Final Capital: $126,349.79
https://preview.redd.it/etefwstw9vmg1.png?width=1719&format=png&auto=webp&s=28953d6b77f779c78ef23def66580a5c4a4617f9
https://preview.redd.it/h2hx26vz9vmg1.png?width=1717&format=png&auto=webp&s=238c652e2bc862f889660fba2c0592db89757025
Win rate dropped to 56%, which is weak for mean reversion. But ABNB only IPO'd in late 2020 and has been in a downtrend since. just 69 trades and 7% time invested. Hard to draw conclusions from such limited data. The fact that it's still slightly profitable on a falling stock is something I guess.
**Takeaways:**
* \~70% win rate held across SPY, QQQ, and AAPL
* Profit factor consistently around 2.0 on ETFs
* Time invested stays low (16–25%), capital efficient
* Individual stocks = higher returns but higher drawdowns
* Doesn't work on everything (ABNB)