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Hi Howard,

It is interesting the conclusions that you came to regarding the S&P500 being mean reverting rather than trend following. I developed my systems using ASX data many years ago and always found that trend following provided excellent results. Indeed, there are quite a few traders here in this forum and others who have done very well out of trend following systems (some even using weekly data). I had always thought that all markets were the same until I read your book (QTS) where you mentioned that the S&P 500 tended to mean revert and that the standard MA crossover methodology was in fact the incorrect way to apply it.

I got access to some US data and tested my systems on them and sure enough, they totally bombed out. They all went from >30% CAR from the ASX to <-30% CAR when used on the S&P500 stocks. Never in my wildest dreams did I anticipate that the difference between the ASX stocks and the S&P 500 stocks to be so great. The S&P500 stocks simply do not want to move !!!

I then spent quite a bit of time developing a mean reversion system, specifically to trade the S&P500 stocks. I now currently have a MR system that I am happy with and I thought that the acid test would be how it would perform using ASX data. Sure enough, the results came back almost identical to my previous experiment, the MR system totally bombed out using ASX data, with a CAR of -20%.

I used to think that one should be able to develop a sufficiently robust system to trade across all markets, whether they be futures, commdities, stocks etc etc, after all a price and volume chart is a price and volume chart right ?? Well from what I have seen, the answer is no. Each market has its own distinct characteristics and there are right and wrong ways to trade each market.

So in conclusion, I agree with your findings re S&P500 stocks. I would however be very interested to see what conclusions other traders would come to when they apply their trend following systems on S&P500 data.