Trading System Backtest: 30 Mean Reversion Exits – Which Works Best? (Sneak Peak)

Video showing you 30 different exits that I tested for one of my mean reversion trading systems. And so in this video I want to give you a quick summary and show you what I did. So if you want to watch the whole thing, you can click the link in the description below, watch the video and also grab the code for that mean reversion system in the 30 different exits that I tested. So let's have a quick look at what I tested. This is a simple mean reversion trading system and I'm testing on the Canadian stock market. It can be applied to various different stock markets around the world. But you can see the code is super simple. There's only a couple of rules here. There's a trend filter which is the close above a long term moving average. There's a volatility filter which is the average to range divided by the closing price has to be more than 8%. That means we're looking for volatile stocks because they're the best for mean reversion. Typically there's a liquidity filter, the average daily turnover over a million dollars so that we don't get too much slippage in commission. We've got an entry trigger which is when the RSI3, the three bar RSI crosses below five. And then we've got two different exits in the default system, the base case system, the first one is the close crosses above the three period ema and the second one is the disaster kind of safety exit where the close crosses below the long term moving average. So if it moves into a downtrend then you're going to get out. There's a couple of other exits, a couple of the rules. Down the bottom we've got a 40% stop loss which is kind of like a disaster fail safe stop. And we've got position sizing here which is 10% of equity. So this system actually performs remarkably well when applied to the Canadian stock market. You can see here it performs pretty consistently over the last 20 plus years. I've tested it here from 1990 to 2018. The reason I only tested it to 2018 is because I wanted to keep some out of sample data in case any of these exits that I tested ended up being particularly promising. Make sure that I could validate it later on after I'd done all of the optimization. So what rules did I test in this long video? Whole bunch of them. Let me show you the code for the test rules. So what I did is I've got a bunch of different types of rules. The first one is or the first group of rules are next bar on open exits and then the second group of rules is exiting at the close on the signal bar in the long video. Explain how we need to treat these. We're going to be careful about next bar about exiting same bar on close. The next bar on open exit is the more typical way to do it. So you can see on the screen here we've got a whole bunch of different exits. Here's the default one and we've tested exiting on the next bar close above the previous day's close close above the previous day's high an up bar where the close is greater than the open. The close is greater than the previous three bar highest close. A bunch of different RSI exits here. This is a particularly interesting one. Exiting when the RSI is the highest value. The RSI has been in the last three days. Now that's kind of cool because the RSI falls to give you the mean reversion entry and then as soon as it pops and gives you a higher value than it's been in the last couple of days, then you can get an exit. And actually as a hint, that one works really, really well. Okay, so I'm not going to go through all the exits in this short video. This is just a tease. If you want to watch the long video, click the link in the description. And if you want to cut to the chase and get the code so that you can download it and test it for yourself, the second link in the description will take you to a page where you can enter your name and email and you'll get the code, the rules, the test results, as well as a whole bunch of other resources in my Trader Acceleration Resource Hub, including a couple of ebooks, three different courses, four cheat sheets to improve your trading immediately, and a quiz amongst other things. So click the second link in the description if you want to get all of those goodies and the code for this system. Alrighty, let me give you a quick sneak peek of the results. Here they are. Here I tested all 30 exits and you can see we've got very consistent sort of results. All of the entries gave positive or. Sorry, all of the exit rules gave a positive compound annual return. The car over mdd, which is compound annual return divided by max drawdown, varied quite a bit. So the exits really do make a big difference. Yes, so you've got to be careful. I've tested a bunch of exits here and many of them perform really quite well. Just a little sneak peek again. My default entry, which is a close above the moving average performs really really well. The close above the previous day's close performs really well. The close above the open so just a green candle that that performs really really well. And then a couple of RSI exits also perform well. Now what you'll notice about this system, what you should notice is that the risk adjusted return is off the charts high because it's ultra selective. This system doesn't trade very often. It's only in the market 1 to 2% of the time. So you're making a compound annual return of 7 to 8% per year in the backtest with only 1% exposure. So the risk adjusted return is in the many hundreds of percent. So 600% to 1000% risk adjusted return, which is kind of nice. Now there's one other cool finding that I discovered and I'll share with you in the long video in more detail. But that's to do with the next bar on Open Exit versus Exiting the same bar on Close. But you'll have to watch the longer video to dig into that discussion. So if you want to learn more about mean reversion exits and find one that really works well, click the first link in the description and watch the long video where I discuss them all. If you want to cut to the chase, get the code and test it for yourself. Click the second link in the description, enter your name and email and get the Trader Acceleration Resource Hub, which includes the code, the test results and a bunch of trading courses and cheat sheets to help you improve your trading today. My name is Adrian Reed. This is Enlightened Stock Trading. Click the link below, get access to the resources. Don't forget to give it a thumbs up and subscribe to the channel so you get access. Next time I go live. Click the link and resources in the description and I'll see you there. Bye for now.