ETF Prophet

Login
Our Flickr Channel Our Facebook Our RSS Feed follow us on twitter
Dave Evans

As a follow up to my last post on the PTO Oscillator, I thought I’d do a quick follow up on how it relates to Mean Reversion indicators like the DVB. In theory, the PTO could act as a reasonable environment filter for the DVB. Does it help performance in any way?  I decided to test the following condition on the S&P 500 cash going back to 2000. Long only:Long only if the DVB is < 0.5 and the PTO Down is > 0.75.

In plain English, if the short term indicator is over sold and the PTO oscillator indicates that the downtrend is long in the tooth, go long.

Results:

S&P 500 cash market buy & hold: 12.6% return. 2820 trades. Ave day = 0.00%. Strike rate =52.73%
DVB < 0.5: 128.3% return. 1403 days. Ave day = 0.09%. Strike rate =56.17%
DVB <0.5 AND PTO down >0.75:  81.26% return. 475 days. Ave day = 0.17%. Strike rate =58.32%

The total return is lower due to there being less trades taken, but the average trade increases in profitability as does the strike rate.

The compound returns look fairly smooth:

23-03-2011 21-27-19
Conclusion:

Based on this very limited sample, there are indications that the PTO warrants further investigation both as a trend filter as an environment filter for mean reversion indicators. Nice idea DV!


Comments are closed.