Cumulative DV2 Indicator

Inspired by Larry Connors’ Cumulative RSI(2) (found in this post), I decided to test out how a Cumulative DV2 indicator would work. This is a frictionless test on SPY from 1/1/2000 – 12/26/2012. I tested the cumulative DV2 using default parameters (Buy/Cover if DV2 < 50 & Sell/Short if DV2 > 50)

Normal DV2:

DV2 50 1-1-2000 - 12-26-12

2-day cumulative DV2

Cum 2Day DV2 50 1-1-2000 - 12-26-12

3-day cumulative DV2

Cum 3Day DV2 50 1-1-2000 - 12-26-12

4-day cumulative DV2

Cum 4Day DV2 50 1-1-2000 - 12-26-12

5-day cumulative DV2

Cum 5Day DV2 50 1-1-2000 - 12-26-12

6-day cumulative DV2

Cum 6Day DV2 50 1-1-2000 - 12-26-12

7-day cumulative DV2

Cum 7Day DV2 50 1-1-2000 - 12-26-12

8-day cumulative DV2

Cum 8Day DV2 50 1-1-2000 - 12-26-12

9-day cumulative DV2

Cum 9Day DV2 50 1-1-2000 - 12-26-12

10-day cumulative DV2

Cum 10Day DV2 50 1-1-2000 - 12-26-12

11-day cumulative DV2

Cum 11Day DV2 50 1-1-2000 - 12-26-12

The results make me think of one of David Varadi‘s posts (link) about how mean-reversion isn’t necessarily ‘dead’, it has only changed to become mean-reverting on a longer period of time (per the equity charts of the 4-9 day cumulative DV2). An adaptive framework similar to that found at this post by Sanz Prophet could definitely be used.

One comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s