A selective setup can still generate thousands of trades when you scan an entire stock universe. In this video, we explore a reversal strategy available in AlgoCloud that combines a specific market regime with a short-term pullback—and achieved a win rate close to 70% in a 31-year historical test.

The idea behind the strategy

The strategy identifies a particular market regime using the difference between two exponential moving averages, normalized by ATR. This makes the signal comparable across stocks with different prices and volatility levels. A second condition looks for negative momentum over the previous five days.

The setup may be rare on an individual stock. In stock picker mode, however, the strategy scans the S&P 500 universe for opportunities across many stocks. Positions close when momentum signals a strong move to the upside.

What the historical tests showed

The backtest covered 31 years and included both current and past S&P 500 constituents. It generated approximately 4,700 trades, with:

• A win rate close to 70%.
• Maximum drawdown of approximately 23.5%, measured using open positions.
• Smaller drawdowns than the S&P 500 Buy & Hold comparison, which experienced two declines of around 55%.

The research also examined different parameter settings, stocks from other indices, and the 100 most liquid ETFs. The focus was on stable parameter regions rather than isolated performance peaks. Results remained positive on the ETF universe, while returns varied across the stock universes tested.

Watch the walkthrough and test it yourself

The video explains the entry and exit logic, the backtest results, and the additional tests. It also shows how to unlock the ready-to-use strategy in AlgoCloud by creating a free account and completing the platform’s introductory steps, with another bonus strategy included.

Watch the full walkthrough, then explore the strategy in AlgoCloud and run your own tests.