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Best Short-term Equity ETF Reversal Indicator?

February 14, 2023 • Posted in Technical Trading

What is the best short-term reversal indicator for equity exchange-traded funds (ETF)? In his January 2023 paper entitled “A Comparison of Short-Term Mean-Reversion Indicators for Global Equities”, Raymond Micaletti tests several short-term mean reversion indicators on equity ETFs. Specifically, he tests 306 trade setups, encompassing:

  • Four broad U.S. equity ETFs, 10 U.S. equity sector ETFs and three non-U.S. equity ETFs.
  • 17 indicators, including 14 widely known price oscillators and three oscillator modifications.
  • Three short-term holding intervals (1, 3 and 5 days).
  • Long and short positions.
  • Three levels of signal intensity: top (bottom) 10%, 20% or 30% for long (short) trades.

He ranks indicators by aggregate performance across all ETFs and across all signal intensities for all strategies, for all long strategies, for all short strategies and for each holding period (all, long or short). Using 1-minute open-high-low-close-volume data, adjusted for splits and dividends, to calculate indicators and daily returns for all ETFs during 2003 through 2022, he finds that: (more…)

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