Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

Ammeo

Mean Reversion

Recommended Posts

Its a simple thing meaning prices and returns eventually move back towards the mean or average value over a historical period of time...we are now Gold and Apple coming to what we could call a mean reversion cause if we average the prices of their 5-10 years time then they stand around their mean or somewhat above or below.

 

However, Inflation plays a different role in calculation "Mean Reversion" as inflation adjustment will most probably move the average higher than what really seems which could mean Gold or Apple could be slightly undervalued.

 

So my question will be is it now a good time to buy any of Gold or Apple or any other asset out of its Mean Reversion? i am personally still bearish on both but think both could provide a good buying opportunity in near future...

Share this post


Link to post
Share on other sites

First, you have to be careful how you define "mean".

 

Second, you have to be careful what you're applying that definition to.

 

Gold is a commodity. Apple is a stock. Then of course there are indices. And futures.

 

Gold as a commodity is worth whatever people are willing to pay for it. Whatever it was a year ago or five years ago or ten years ago isn't particularly relevant, particularly since gold has little intrinsic value beyond its industrial use.

 

Apple is a stock, and its intrinsic value is its book value, which is considerably less than its price at present.

 

Then there are the indices, which are an amalgamation of all the stocks and so forth of which they are comprised.

 

Therefore, you are probably better off looking to the past, where a great many people were interested in and willing to purchase as they may be interested in and willing to purchase at the same price again. With regard to gold we are in one of those ranges now. Whether people will eagerly buy here or eagerly unload what they have remains to be seen. Anticipate both outcomes.

Share this post


Link to post
Share on other sites
I

However, Inflation plays a different role in calculation "Mean Reversion" as inflation adjustment will most probably move the average higher than what really seems which could mean Gold or Apple could be slightly undervalued.

 

So my question will be is it now a good time to buy any of Gold or Apple or any other asset out of its Mean Reversion? i am personally still bearish on both but think both could provide a good buying opportunity in near future...

 

Ask yourself is gold really going to adjust and revert to an inflation adjusted mean....then ask has it done so in the past. (InflationData: Is gold really a hedge?) When a sales man tells you gold is a great inflation hedge, then they tell you in the next breath that gold should be at $5000 oz because of this, ask them so why has it been such a bad inflation hedge over that time if it is meant to be a great one.

 

Is this a good measure to even define your mean? What time frame are you talking about?

Are you using real gold prices to adjust for inflation (adjust furtures prices its different again)....which countries inflation, in USD....if you adjust for people in different countries the results vary.

 

and as DBP says comparing Apple and gold - crazy.

 

It appears you might be looking for a justification for a trade.

 

It does raise an interesting question as well regards support and demand - when people adjust prices areas of support and resistance change.....people dont think and react like this in real life - they think oh i bought it at $400. They dont take into consideration that it was many years ago.....just food for thought.

Share this post


Link to post
Share on other sites

Re my post above, a chart of the S&P may help illustrate this notion of "mean".

 

To a large extent the S&P has been in a trading range since '97. If you take the middle of this range, you get the mean (the pink line). If you go by trading volume, i.e., where the most trading has taken place, you end up a little higher (the blue line, +/-). Whichever, the index will revert to this mean. And has for 16 years.

 

When most people talk about mean reversion, however, they do so within the context of the "uptrends" and "downtrends" within this trading range. If you were to draw trend channels to track these up and down swings (not done here to keep things simple), you would be able to draw a line through the centers of these channels. These would be the means for each of these channels, which are essentially diagonal trading ranges (this accounts for the commonly-held and incorrect notion that trendlines provide support and resistance).

 

With gold, you would/could have seen this dynamic beginning at the end of 2011, and gold bounced back and forth through the mean of this range for 19 months (though it would have taken a month to establish the mean to begin with). Now, however, gold has dropped out of this range and is seeking "value". Good luck with that.

 

Apple traded in a series of ranges until the end of 2011 (though if one used a small-enough interval, he could find many ranges on the way up and the way back down). But that's old news. Now, like gold, Apple traders/investors are seeking value. In this case, though, Apple, like most stocks, has an intrinsic value. Whether or not investors are willing to pay a premium over that remains to be seen.

 

In both gold and Apple, therefore, "mean reversion" is no longer particularly appropriate unless one tortures a trendline into fitting whatever the chartist has in his mind. The market, though, doesn't care what the chartist has in his mind. It's interested only in where transactions have taken and are taking place. And in the case of Apple, the last of these "congestions" spanned July through Dec '11, which is where we sit now.

Image8.thumb.png.233c7cd3df094e02ddbf6d648c755b76.png

Share this post


Link to post
Share on other sites
Ask yourself is gold really going to adjust and revert to an inflation adjusted mean....then ask has it done so in the past. (InflationData: Is gold really a hedge?) When a sales man tells you gold is a great inflation hedge, then they tell you in the next breath that gold should be at $5000 oz because of this, ask them so why has it been such a bad inflation hedge over that time if it is meant to be a great one.

 

Is this a good measure to even define your mean? What time frame are you talking about?

Are you using real gold prices to adjust for inflation (adjust furtures prices its different again)....which countries inflation, in USD....if you adjust for people in different countries the results vary.

 

and as DBP says comparing Apple and gold - crazy.

 

It appears you might be looking for a justification for a trade.

 

It does raise an interesting question as well regards support and demand - when people adjust prices areas of support and resistance change.....people dont think and react like this in real life - they think oh i bought it at $400. They dont take into consideration that it was many years ago.....just food for thought.

 

I am not looking for a justification for a trade...and im not comparing Gold with Apple either or to any indices or futures whatsoever.....i just simply asked on opinions on how the mean reversion phenomenon can currently be applied to both the assets with adjustment to inflation, i know am not the guru here and nor will be, even many big hedge fund managers dont call themselves the guru cause in the end its the market that always wins ...

 

Btw thanks for the link,i'll read it out..:)

Edited by Ammeo

Share this post


Link to post
Share on other sites

So my question will be is it now a good time to buy any of Gold or Apple or any other asset out of its Mean Reversion? i am personally still bearish on both but think both could provide a good buying opportunity in near future...

 

I believe its time to buy gold. But I am not sure about Apple.

Share this post


Link to post
Share on other sites
I believe its time to buy gold. But I am not sure about Apple.

 

It is always a sense to buy gold in long term run because it will grow in price whenever economic scenario gonna take its way. But my broker Hotforex offers only CFD on gold no futures, but i thing it is enough to speculate and get good 20-30 pips everyday

Share this post


Link to post
Share on other sites

mean reversion is a theory suggesting that prices and returns eventually move back towards the mean or average. This mean or average can be the historical average of the price or return or another relevant average such as the growth in the economy or the average return of an industry.

 

This theory has led to many investing strategies involving the purchase or sale of stocks or other securities whose recent performance has greatly differed from their historical averages. However, a change in returns could be a sign that the company no longer has the same prospects it once did, in which case it is less likely that mean reversion will occur. Percent returns and prices are not the only measures seen as mean reverting; interest rates or even the price-earnings ratio of a company can be subject to this phenomenon.

Share this post


Link to post
Share on other sites
mean reversion is a theory suggesting that prices and returns eventually move back towards the mean or average. This mean or average can be the historical average of the price or return or another relevant average such as the growth in the economy or the average return of an industry.

 

This theory has led to many investing strategies involving the purchase or sale of stocks or other securities whose recent performance has greatly differed from their historical averages. However, a change in returns could be a sign that the company no longer has the same prospects it once did, in which case it is less likely that mean reversion will occur. Percent returns and prices are not the only measures seen as mean reverting; interest rates or even the price-earnings ratio of a company can be subject to this phenomenon.

 

Maybe because investing in an asset overheats it's and sometimes it needs to cool down to launch the process again. I stick to the opinion that the higher is upsurge the deeper is collapse when it happens. What do you think?

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Topics

  • Posts

    • XRP trading: Still Bearish, Ripple May Bounce Up After Testing a Close Support   Ripple (XRP) Price Analysis – April 16 Regardless of the current green market, XRPUSD bearish sentiment moves in a descending channel with a slow price action towards close support. XRPBTC, on the other hand, has further fallen in a new direction. Still, XRP market is falling.   XRP/USD Market Key Levels: Resistance levels: $0.35, $0.37, $0.39 Support levels: $0.30, $0.28, $0.26   Looking at the medium-term chart, Ripple appeared bearish as price trades within a descending channel in since early April. While sitting at the lower channel, XRPUSD market has been consolidating for the past five days as a swing high is expected at $0.35 resistance level. A further push above the mentioned resistance may resume XRP on a bullish trend.   Meanwhile, a possible swing low could plummet price to $0.3 support and beyond. Evidently, the trend lines are still a defensive line for the bulls and the bears.   Viewing the 4-hours RSI, a gradual buying momentum is compounding as it points upward. More importantly, the 4-hours Stochastic RSI pressure nears overbought territory. A slight drop is likely once the indicator reaches the overbought zone. Nevertheless, XRPUSD market is still respecting a descending channel pattern.   XRP/BTC Market Ripple, as a hedge, is on a downtrend trend. The massive sell-off in early April has led the sellers to more significant downward movement as price faces 6000 SAT low.The coin’s value is dramatically depreciating as a new low is yet to be established. The bearish scenario is now revealed to be strong; following a new purple line.   Since the drop, the 4-hours RSI has positioned trading below the 50 level; currently swinging on the oversold line. A clear breach above the purple trend line could fly price to 6600 SAT resistance and above.   The current 4-hours Stochastic RSI faces the oversold zone; showing an ongoing selling pressure. A long position may switch the Oscillator on an upside trend. At the moment, the sellers are gaining control of the market.     Please note: insidebitcoins.com is not a financial advisor. Do your own research before investing your funds in any financial asset or presented product or event. We are not responsible for your investing results.   How to trade Bitcoin successfully:  https://insidebitcoins.com/trading/bitcoin       Best cryptos exchanges:  https://insidebitcoins.com/cryptocurrency-exchanges  
    • Hello colleagues I found an automatic strategy that trades on Ichimoku. I got a trial, interesting work with Renko charts ,where only the closing prices of Renko are perceived. The results of my testing on the tick history for the entire period of downloading I apply, the settings were provided by the author of the strategy.  Has anyone else tried it?  What you think ? Their site amntrader.com 
    • Date : 18th April 2019. MACRO EVENTS & NEWS OF 18th April 2019.FX News Today 10-year Treasury yields corrected -2.7 bp to 2.567% and JGB yields are down -1.4 bp at -0.0033%. Asian bonds were generally supported, as stock markets sentiment turned sour again, with South Korean paper underperforming after the BoK left interest rates unchanged, but cut its growth and inflation forecast to 2.5% and 1.1% respectively. Record household debt was one of the factors holding the BoK back from cutting rates for now, and South Korea’s 10-year yield jumped 5.9 bp as the bank tried to calm recession fears. Stock markets generally corrected from the six months high seen yesterday with uninspiring corporate earnings and problems with a new Samsung phone preventing further gains for now. Topix and Nikkei lost -0.96% and -0.80% respectively, after Wall Street closed with slight losses. The Hang Seng is down -0.58%, CSI 300 and Shanghai Comp down -0.44% and -0.39% respectively. The ASX dropped -0.10% and US stock futures are also broadly lower, suggesting ongoing pressure on markets. The front end WTI future meanwhile is trading at USD 63.77 per barrel. Charts of the Day Technician’s Corner EURUSD is still trading around the 1.13 level, and in a channel with key Resistance at 1.1320 and Support at 1.1279. Both are still strong after having bounced yesterday. Indicators are issuing mixed signals. GBPUSD has been stable around the 1.30 level, still unable to break through, fluctuating between the 1.3067-1.3026 Resistance and Support levels. Indicators are giving positive signals. USDJPY started the day below 112.00 mark, as indicators are suggesting a downwards movement. Support remains at 111.80. XAUUSD is trading at year-to-date lows, after breaking through the 1275 Support level. 1270 is the next Support level, with indicators are showing signs of stabilization. Main Macro Events Today EU PMIs (EUR, GMT 08:00) – Manufacturing and Composite PMIs are expected to increase in April, to 47.9 and 51.8 respectively while the Services PMI is forecasted to have remained at 53.3. Retail Sales ex Fuel (GBP, GMT 08:30) – UK Retail Sales ex Fuel are expected to have increased to 4% y/y, compared to 3.8% y/y in March. Retail Sales ex Autos (USD, GMT 12:30) – Retail Sales are expected to have increased to 0.4% in March, up from the negative 0.2% surprise in February. Retail Sales (CAD, GMT 12:30) – Retail Sales are forecasted to have registered an increase in Canada as well, to 0.2% compared to 0.1% in January. Philly Fed Index (USD, GMT 12:30) – Philly Fed index is expected to have eased to 10.3 compared to 13.7 in March. Markit PMIs (USD, GMT 13:45) – Mixed signals are expected from the PMI release, as Manufacturing is expected to have increased to 52.8 from 52.4, while the Services PMI is expected to have declined to 55 from 55.3. Support and ResistanceAlways trade with strict risk management. Your capital is the single most important aspect of your trading business.Please note that times displayed based on local time zone and are from time of writing this report.Click HERE to access the full HotForex Economic calendar.Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!Click HERE to READ more Market news. Dr Nektarios Michail Market Analyst HotForex Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
    • Hi all does anyone use forex signals here? i want to try some out but not sure if its worth paying for it or just use free ones. anyone got recommendation for signal providers?
    • Hello, Samuel. I am a new member to this forum. Great to be here.
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.