The classical mean reversion strategy in the S&P 500

The classical mean reversion strategy in the S&P 500 involves specific criteria based on Internal Bar Strength (IBS) and Relative Strength Index (RSI) to determine trading signals.In this post we backtested a strategy on SPY or the S&P 500.

We backtest the following trading rules:

* IBS (internal bar strength) must be lower than 0.25 (using daily bars).

* RSI (21) must be below 45.

* If 1 and 2 are fulfilled, go long at the close.

* Exit when close is higher than yesterday’s close.

The equity curve (Shown in the image below) since January 2000 looks like this (starting with 100,000 in equity and allocating 100% of equity to every trade, ie. compounding, but taxes are not deducted)

We also invert it, (ie. reversing the parameters). Check how the equity line performs >>

https://www.quantifiedstrategies.com/sp-500-mean-reversion-using-ibs-and-rsi/