Strategies · Library · ETFs
§4.4Mean reversion
Mean-reversion
Rank ETFs by where yesterday's close sat inside its high-low range. Closes near the top of the range are treated as rich and near the bottom as cheap, betting the next day partly reverses.
Open in the builderAs a long-only proxy; see how ARCANE uses it.
- Asset class
- ETFs
- Held for
- Days
- Data
- ARCANE has part of the data
- Symphony
- Builds as a long-only proxy
The rule
- Signal
- Internal bar strength: close minus low, divided by the high-low range, for the prior day
- Entry and exit
- Buy the lowest-scoring ETFs, sell the highest; hold a day or a few.
- Sizing
- Equal, or scaled by volatility
How it fails
- Costs eat small edges
- Trends overrun the bet
- Needs high and low
Data it needs
- daily adjusted closes
- additional inputs ARCANE lacks
Daily closes exist; highs and lows are not in ARCANE's series, so the exact measure cannot be built.
How ARCANE uses it
A short-term Call on a bounce could cite an RSI proxy (paper only).
Builds as a long-only proxy. No high/low inputs; approximate with RSI oversold on a liquid ETF.
Filed under the mean reversion card
Buy last week’s biggest losers and sell last week’s biggest winners, betting that short, sharp moves partly undo themselves.
A paper plan from this card holds 1 to 10 days, stops at 1× the expected move and uses at most 50% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §4.4, p. 65 of the SSRN version. Described in our words. Mean reversion is ARCANE’s filing, not the book’s.