Here is a simple mean reversion trading system using Autocorrelation and Stochastic osciallator crossover. In the last article we seen about autocorrelation that negative correlation attracts mean reversion trading and positive correlation attracts trend trading. so the whole idea of the trading system is not to take all the stochastic crossover signals. But only the long only positive crossover signals when the autocorrelation is negative.
Trading Strategy Rules
1)Enter Long trade at the next day open only if the auto-correlation is negative and there is a positive stochastic crossover.
2)Exit Long trade at the next day open if either the auto-correlation turns positive or if there is a negative stochastic crossover
Autorcorrrelation and Stochastic Mean Reversion Trading – Amibroker AFL coding
Strategy tested with Nifty Futures Daily timeframe with 100 shares (4 lots x25 shares of Nifty) for Long only trades. Commission+Taxes+Slippages are assumed to be Rs150 per trade. Tested with historical data right from the year 2005. And the holding time of the trading strategy range from 2 days to 10 days max.