MR Swing: a quantitative system for mean-reversion and swing trading in market regimes


Authors: Dave Abrams and Scott Walker

Published in NAAIM Uncommon Knowledge 2010

Secret Sauce Trading Seminar (March 6, 2010) Presentation (PPT)

Published Paper (PDF)

Strategy Report (@ES 25K/contract - PDF)

Blog Post at CSS Analytics


Keywords

Quantitative Trading Strategy, Quantitative Strategy, Hedge Fund Strategies, Swing Trading System, Automated Trading Systems, Technical Trading System, Swing Trading Strategies, Short Term Swing Trading, Emini Trading System, Futures Trading Systems


Acknowledgements

Thanks to our excellent reviewers: Beth Borchers (editor), Hardin Abrams (engineer), Lee Girer (engineer/finance), and Ted Schnur (professional trader). MR Swing uses the DV2 by David Varadi at CSS Analytics


Abstract

MR Swing is a quantitative system that employs daily mean‐reversion and swing trading in different market regimes to produce enhanced absolute and risk adjusted returns (e.g. in one configuration 23% CAGR, 54% risk adjusted CAGR, 1.37 Sharpe, 13% max drawdown). The system uses four key design principles: market‐regime‐switching, non symmetrical trading algorithms, volatility adaptive metrics, and robustness to regime whipsaws. An extensive analysis of out‐of‐sample ETFs and managed futures demonstrates the robust performance of the system over ten years. Finally, MR Swing is incorporated as a component in a diversified portfolio of ETFs (modeled after university endowments) and is shown to significantly increase the portfolio’s return while reducing the maximum drawdown.


Updated Results (June 14, 2010)

Symbol Time Period Total Gain CAGR Sharpe Ratio DVR (linearly adj Sharpe) Max Drawdown (M2M Daily)
SPY 04/05/2000 to 06/14/2010 1921.28% 34.41% 1.56 1.34 27.04%
QQQQ 04/05/2000 to 06/14/2010 1871.73% 34.08% 0.99 0.90 36.94%
Combined SPY + QQQQ 04/05/2000 to 06/14/2010 1997.77% 34.25% 1.36 0.92 22.23%
@ES $25,000/contract 05/28/2002 to 06/14/2010 25,030.02% 98.29% 2.06 1.70 46.59%
SPY 01/01/2009 to 12/31/2009 108.69% 109.31% 4.11 3.96 11.58%
QQQQ 01/01/2009 to 12/31/2009 44.67% 42.46% 1.67 1.54 12.70%
SPY 01/01/2010 to 06/14/2010 8.87% 21.07% 1.14 0.37 11.91%
QQQQ 01/01/2010 to 06/14/2010 3.75% 8.64% 0.41 0.19 10.55%

MR Swing + Ivy Portfolio

The paper shows that when MR Swing is allocated 20% of assets in the The Ivy Portfolio the drawdown can be reduced to 4.48% and the annual return can be increased to 13.41% CAGR with Sharpe Ratio of 1.60.




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