Better System Trader

Better System Trader

Better System Trader is the podcast and blog dedicated to systematic traders, providing practical tips from trading experts around the world.

062 – Mean Reversion strategies with PJ Sutherland

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The performance profile of Mean Reversion is extremely desirable to a lot of traders.

Mean reversion trading strategies can produce high win rates and a smooth equity curve, however there are risks, which can result in giving back a large portion of profits, or of your trading account, some times in a very short period of time.

So what can you do to build mean reversion strategies that produce consistent profits while managing risk effectively?

Todays guest, PJ Sutherland, is here to share the knowledge he has gained from years of research and trading mean reversion strategies, and as you’re going to hear, he has some really interesting insights to share with us.

PJ has extensive experience in the development and deployment of quantified trading systems and has been active in the market for the past decade.

He is the founder and director of Alpha Investment Advisors, providing research to hedge funds and prop trading firms, and the founder of the website Quantlab.co.za for private traders.

In our chat today, you will learn:

  • The key drivers of short-term returns in mean reversion trading
  • The impact of market environments on mean reversion strategies and how to detect and adjust strategies to varying market conditions
  • Should you ‘Catch a falling knife’ or wait for confirmation? How to determine which entry technique is best for you
  • Building a portfolio of strategies using parameter ranges across the mean reversion curve
  • Simple but powerful techniques to managing risk in mean reversion strategies
Inefficiencies that exist because of mean reversion are driven by human emotion – PJ Sutherland

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Resources mentioned in this episode

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It’s the magnitude of the move measured by rate of change that appears to be the most effective

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Controlling returns never works for anyone. Those look after themselves if we focus on risk

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Once I started focusing on the magnitude of price change, that’s really where I started to see phenomenal results

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Transcript

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Episode Released:

13 November 2016

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Comments

  1. Nicely done Andrew and PJ.

    This is one to listen to a couple of times to glean the gems – some really useful observations.

    Regards
    Dave

  2. I am a software engineer and a part time hedge fund manager. I am managing ~1mil across 5 accounts for some time. As an example of what an individual investor can do in the modern markets my ROI is well above 10%, Sharpe is better than 1.5. I am not employing leverage and the accounts are in cash most of the time. I publish a monthly report online – see the website.

    What I find strange is the fact that while many managers like to talk about outstanding returns rarely I can see downside deviation or Calmar ratio. Makes me wonder why? The most obvious answer is that these numbers are not very great.

      • Thank you for the great podcast! I have made a consistent effort and listened most of the record in a single week time. Extremely interesting. I wish I would encounter such a source of information 10 years ago.

        • Hey BD, listening to most of the recordings in a single week is an absolutely fantastic effort, well done! Thanks for listening.

  3. Very interesting talk; I think this is the best of BetterSystemTrader; and I have listened to it more than 10 times; and read the script letter by letter.

    I have already benefited from it materially 🙂

    • Hey Ali, great to hear you’ve benefited from it, that’s awesome!

      This is one of my favorite episodes too.

Trackbacks

  1. […] Podcast: Mean Reversion strategies with @QuantLabInfo [Better System Trader] The performance profile of Mean Reversion is extremely desirable to a lot of traders. Mean reversion trading strategies can produce high win rates and a smooth equity curve, however there are risks, which can result in giving back a large portion of profits, or of your trading account, some times in a very short period of time. So what can you do to build mean reversion strategies that produce […]