Author(s)

Chunyuan Zheng, Guangyan Gan, Jianing Zhao, Haoxuan Li

Corresponding Author

Haoxuan Li

Abstract

Investors generally go long when the market is rising and short when the market is falling. In order to implement trading strategies more effectively, it is very important to mine the market direction and the timing of long and short positions. This article divides the direction of the market into three categories: Random Walk (RW), Trend Following (TF) caused by negative reflection, and Mean Reverting (MR) caused by overreaction. Push-Response Test, Variance Ratio Test, and P+, P- Test are used to determine the direction of the market, and finally formulate specific trading strategies according to the market type to achieve profitability. This article summarizes the market of certain indexes of US futures, such as HO, GC, etc., which have TF trends in recent years. Taking the ES (E-mini S&P 500) contract as an example, the results show that ES has a trend of TF in the last 6 years, and a trend of MR in 97-09. This article proposes quantitative strategies based on TF and MR market respectively, and applies it to the ES index to verify the effectiveness of the trading strategies.

Keywords

Market Directions, Trend Following, Mean Reverting, Trading Strategy, E-mini S&P 500