weekly reversal
What it checks
After a stock has a particularly bad or good 5-day stretch (vs its own history), the move tends to partially reverse over the next 1-2 weeks. Buy the steepest 5-day losers; short the biggest 5-day winners.
Mechanism
Robust short-horizon reversal: stocks with the worst 5-day returns subsequently outperform, and stocks with the best 5-day returns subsequently underperform, over a 1-2 week holding period. Persists net of bid-ask bounce; attributed to short-term liquidity provision by contrarian traders.
Signal rule
5-day return in bottom decile of own 252d distribution fires LONG; top decile fires SHORT, hold 5/10d.
Data dependencies
daily_pricesAdjusted-close OHLCV for every US-listed ticker; primary price feed.
Expected edge
- Paper alpha
- 1-2% per event
- Paper window
- T+1 to T+10d
Lehmann 1990; ~1-2% per 5-day event after costs, ~20-30% annualized gross.
Related families
short term reversalMomentumStocks that fell sharply over the last 3-10 days tend to bounce in the following 3 days. We z-score recent N-day returns against a 60-day baseline; a z โค -1.5 to -2.5 triggers a 3-bar long entry. This is the textbook Jegadeesh (1990) short-horizon reversal โ the inverse of medium-term momentum and a proxy for liquidity-provision premiums.
lottery maxMomentumHigh recent maximum daily returns predict underperformance (Bali-Cakici-Whitelaw 2011) โ used as a fade signal: stay flat or short when the rolling 1- or 3-month max daily return is in the top 10-20% of own history. Two variants per lookback: flat_when_lottery (zero exposure during the lottery regime) and short_when_lottery (active short capturing the full underperformance).
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