In a past post I blogged about the advantages of combining a short term mean reversion indicator with an intermediate term indicator of the same bent. Click here to view the post.
As a recap, the DVI/B combo method helped smooth the ride with the longer term DVI modulating the shorter term and more erratic DVB. These indicators are available from DV Indicators.
This year the DVI will have had its work cut out in modulating the shorter term indicators like the DVB which came unstuck in August (though have enjoyed a good month or so recently).
To help assess this better I've created two templates for the DV Indis Research package. The general rule is that you only trade if both indicators are signalling in the same direction. You stay flat otherwise.
Template 1 Combines a short term and intermediate term indicator.
Template 2 Combines a short term indicator with a longer term unrelated trend type indicator.
Combo 1 - Short term and intermediate term indicators.
I've used the template to test out various combination options. The first idea presented a few months ago was the DVB/ DVI combination. This helped soften the blow of the DVB's poor performance, but did not avoid it entirely. Following my recent post analysing the components of the DVI, I have been focusing my trading on the DVIM component and stripping out the DVIS. This combo option improves results further.
Finally, using the DVO instead of the DVB has been another way to lift results.
Combo 2 - Short term and longer term trend or skew indicators.
Logically combining separate indicators should offer better diversification and this indeed seems to be the case. The longer term trend filter, the DLTI has been a great companion for shorter term MR indicators helping to reduce drawdown and keep a good level of upside.
Short term mean reversion isn't quite dead yet, especially when its used in conjuction with a wiser, slower moving companion.
Templates available soon.