Questions about mean reversion in trending markets

• 10/24/2017 at 7:57 AM #50351
  jebus89

  Hi all, many thanks for taking the time to read my thread.

  I’m wondering if anyone with some mean reversion strategies in play, could help share some light on how why and what 🙂

  Im having a hard time trying to remove the bad non-profitable-instantly-failed trades that occur when market is trending hard down. (see attached photo)
  I’ve tried to apply different indicators to try to find the “bottom” and not take 2-5 failed trades down the way.

  I’ve tried looking at different strategies both on this forum and elsewhere, but would love some first hand insight on this topic!

  Also im getting best results going with mean reversion + bollinger bands as trigger. What is your “trigger-indicator” for mean reversion? (trigger-indicator = the main indicator that activates the trade if all other conditions are perfect)

  Speaking of bollinger bands, thats is my “main trigger” (Price < bollingerdown) but i realise might be very flawed unless i can remove the bad “down-trending trades”! Even tho bollingerdown is my “trigger”, the conditions combined with other indicators must be present, but stuff like RSI or SMI are all “rock bottom” or close to rock bottom of the indicator, but the price just continues to drop. Any thoughts? Maybe i could count the amount of time RSI has spent under 30 or similar things..?

  at the moment ive tried to remove the worst trades by just adding 4-5 MA’s (10, 20, 30, 40) and a rule saying that if 10 < 20 < 30 < 40 then dont take trades (down-trend) but this is obviously flawed and shitty. 🙂

  Bonus question: What timeframe do you find mean reversion to be the most effective?

  

  jebus89

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  10/24/2017 at 8:04 AM #50353
  StantonR

  RSI[2] in combination with a slow MA (ie 200 Day Moving average) has been proved to be a good mean reversion strategy.

  Alot of strategies on the site are based on this.

  https://www.prorealcode.com/prorealtime-trading-strategies/larry-connors-style-slightly-adjusted-dax-daily-time-frame-only/

  https://www.prorealcode.com/prorealtime-trading-strategies/rsi-2p-larry-connors/

  I use it quite alot for forex strategies.

   

   

  

  StantonR

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  10/24/2017 at 9:20 AM #50357
  jebus89

  @StantonR thank you so much for your reply!

  I will definitely have a look at the links you gave me!
  If you dont mind me asking, what timeframe are you running your majority of mean reversion algos? The reason to why im asking is that ive gotten some half-decent results on 10 and 15 m on different indicies, but im scared that there might not be enough pips to win, when calculating for the cost of impact, spreads etc. However i do like the, usually, over 1 trade pr day rate.

  Should i step away from the shorter timeframes and start focusing on higher timeframes? 30m? 1h? daily?
  or are short timeframes more then OK for mean reversion algos?

  

  jebus89

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  10/24/2017 at 12:08 PM #50377
  jebus89

  I tried the rsi[2] and avrg[200] and optimized the variables for my strategi, and indeed it did give me better winrate and better gain, BUT it also takes 80~ less trades during the same test-period. From 220 -> 150, is 150 trades enough to work with? I’ve read in a post on this forum that a strategy with less than 400 trades should not be trusted (400 trades in backtest) Any opinions on this?

  This is 10m chart and im afraid 100-150 trades is alot fewers trades then what i wanted to test!

  I’m going to try to rebuild my strategy from the bottom once again with the rsi[2] + 200MA in mind. So i can maybe try to build around it instead of implementing  it into my already “finished” algo.

  Again, thanks for the reply.

  

  jebus89

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  10/24/2017 at 1:56 PM #50390
  StantonR

  I would use 1h timeframe

  

  StantonR

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  10/27/2017 at 12:29 PM #50709
  Nicolas

  Tags for mean reversion and mean reverting terms in the library:

  https://www.prorealcode.com/tag/mean-reversion/

  https://www.prorealcode.com/tag/mean-reverting/

  

  Nicolas

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  01/13/2021 at 3:24 PM #157664
  Nobody

  jebus89 wrote:

  Hi all, many thanks for taking the time to read my thread.

  I’m wondering if anyone with some mean reversion strategies in play, could help share some light on how why and what 🙂 Bonus question: What timeframe do you find mean reversion to be the most effective?

  “Short-term volatility is greatest at turning points and diminishes as a trend becomes established”
  Important words from George Soros  , For me volatility is a leading indicator and extremely under rated and uner utilized . Every algo i write has a vol component .
  Volatility should be a key part of any reversion strategy imo
  For me trading a 5m time frame is the most effective

  

  Nobody

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