Here is a strategy that worked on MSFT for the last 2 years. It gave returns around five times better than buy-hold, a total return of 360% vs. 70% for buy-hold. Drawdown was 10.6% vs. 17.9% for buy-hold. Backtest results are shown in the graphs below.
Update Jan 5th 2016
This algorithm was not a stellar performer. Since publication it has been essentially flat, let down badly by the short-side performance
To be fair, the long side performance was reasonable, but buy-hold was on a roll.
Optimum parameters for this period were different than the original posting, buy point -0.98%, sell point 10.33% for this result:
Again, long-side was much more interesting than short-side performance.
Update Oct 19th 2016
This algorithm continues to perform badly
Since publication on 2/27/2015, this strategy has lost 9.45%. There have been 7 trades, 4 profitable and drawdown has been 16.6%. The underlying stock has gained 11.44%.
It’s not looking good for this algorithm, it has lost 27% since 2/12/15. MSFT has added 9.5%.