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Showing results for tags 'mean reversion'.
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Emotionally it's a lot easier to buy on strength than to buy into weakness. Buying into a falling market feels unnatural. Your instincts warn that price may continue to fall resulting in lost capital. On the other hand buying when the market makes new highs feels more natural. Price is moving in your direction and the sky is the limit! However, what feels natural or easy is often the opposite of what you should be doing. In this post I'm going to compare these two different trading strategies on the S&P E-mini futures market and see which one produces better results. I created two simple trading systems in EasyLanguage. Both systems will go long only. Both systems will utilize a 200-day simple moving average (SMA) for an environment filter. Long trades will only be opened if the closing price is above the 200-day SMA. All open positions are closed at the end of the 5th day. No commissions or slippage will be deducted for these tests. The tests were all executed on the S&P E-mini futures market between September 1997 and September 2011. BUY NEW HIGHS First let's create a system that goes long if price creates a new three day high. In other words, when price creates a short term breakout on the up side, we will open our long position. This will represent our buying into strength test. Below is the equity curve. The system is profitable, but we have an ugly looking equity curve with deep drawdown. BUY PULLBACKS Instead of going long on a new three day high, we are going to go long after three consecutive lower closes. This system will represent our buying into weakness test. The equity curve below depicts this system. What a difference! This equity graph looks great all the way until the recent market volatility that hit during the summer of 2011. Our last trade produced a large loss at the very end of our equity curve. Remember, both of these trading systems have no stops. The point is clear. Buying into weakness outperforms buying into strength for the S&P.
I would like to know if there is a good trading system based on mean reversion? Can I find an expert advisor for it and something I can trade on short and long terms. I really like the idea behind mean reversion trading but I can’t find good material about it.
I'd like people to post data that includes a match up of the Price Mean Reversion to the Volume Mean Reversion, the ticker symbol, and the percentage of the time that the two are in sync with each other. Also define how the original starting point for the beginning of the reversion is found. For example, is the starting point for the price mean reversion a swing high or swing low, and how do you define a swing high or swing low. Also how is the volume high defined? For a mean reversion, both the high and the low need to be known in order to find the mean. So there is also a range that needs to be defined. Please also vote in the poll.