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 0.75.
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 : 128.3% return. 1403 days. Ave day = 0.09%. Strike rate =56.17%
DVB 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:
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!
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