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

    • 4 months in and Marketsmith has done really NOTHING for me......still waiting for that stock that will make the year worth it and pay for the $1500 dollar price tag......the paper has become virtually useless......especially since I used it for Political mostly political reference with Issues and Insights.......the rest of the paper is mostly geared to Stock advisers.....not the regular guy........way to boring saying nothing but how to treat guys like me.........this could be my last year.
    • Date : 22nd July 2019. MACRO EVENTS & NEWS OF 22nd June 2019.No deal Brexit risks will continue to unsettle markets next week as the two candidates hardened their rhetoric in end stages of the party elections. The ECB however will stand out as the event of the week,with Brexit uncertainty an important part of the overall outlook. Have a look at the most important events of the coming days in our usual weekly publication. Tuesday – 23 July 2019   The announcement of the next Prime Minister of the UK – Event of the week – Original Brexit campaigner Boris Johnson remains the front runner in the race and is widely expected to be confirmed as the new Prime Minister next Tuesday. Housing Data (USD, GMT 14:00) – A steady rate is anticipated for existing home sales in June at the firm 5.340 mln pace seen in May. The median sales price is estimated to ease to $275,000, for a y/y gain of 0.4%, down from 4.8% in May. In Q1, we saw an average sales pace of 5.207 mln. In Q2, a better 5.297 mln pace is expected. Wednesday – 24 July 2019   Services and Manufacturing PMI (EUR, GMT 07:30) – Preliminary Composite PMIs for Eurozone and Germany are expected to fall in July, to 51.8 and 52.5 respectively, while the Manufacturing PMIs are forecasted at 48.0 and 45.4 respectively. Services and Manufacturing PMI (USD, GMT 13:45) – Preliminary Manufacturing and Services PMIs are expected to decline in July, to 50.4 from 50.6 and 51.0 from 51.5 respectively. Thursday – 25 July 2019   German IFO (EUR, GMT 08:00) – German IFO business confidence is expected to slip to 96.7, after it held steady the past 2 months around the 97 barrier. Event of the week – Interest rate Decision and Conference (EUR, GMT 11:45) –The ECB is meeting on July 25, – shortly after the confirmation of the new PM in London and ahead of the Fed, which is widely expected to cut rates again at the end of the month. On balance, markets see more merit in keeping official rates unchanged next week, while moving to an official easing bias and promising that rates will be at “current or lower” levels well into next year. ECB Monetary Policy Statement (EUR, GMT 12:30) -The July meeting will clearly be a “live” one with doves and hawks battling it out over when to deliver the now widely expected easing measures. It is expected that the majority will see more merit in keeping policy settings unchanged, but change the guidance to introduce a clear easing bias. Durable Goods (USD, GMT 12:30) – Durable goods orders are expected to rise 1.0% in June, after a -1.3% figure in May. Transportation orders should rise 2.7%. Boeing orders rose to only 9 from just zero in May, with weakness due to the hit from problems with the Boeing 737 Max that prompted buyers to delay new purchase commitments. Vehicle assemblies should ease to 11.1 mln from an 11.3 mln pace in May. Durable shipments are expected to rise 0.5%, and inventories should rise 0.6%. The I/S ratio is expected to hold steady at 1.67 since April. Friday – 26 July 2019   Gross Domestic Product (USD, GMT 12:30) – Gross Domestic Product is expected to grow 1.8% in Q2, with a sturdy 2.4% growth rate for final sales thanks to solid growth rates of 3.9% for personal consumption and 4.3% for government purchases, alongside a big $27 bln unwind of the Q1 inventory pop. Always 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. Andria Pichidi 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.
    • WHEN A CHECK/DRAFT IS PAID INTO YOUR ACCOUNT They say it’s a rule from CBN. When a check/draft is paid into your account, especially from someone using another bank, you will receive a credit alert.   The credit alert will be there as an SMS alert, email alert and if you even login to your Internet banking area, you see it there. The name of the sender is not included.   THE STATUS OF YOUR CREDIT The reality is that, the credit will never be added to your available balance. The book balance would be different from the available balance and you won’t be able to use it until after 48 hours. This would give your bank the time to confirm the cheek/draft. If it is genuine, the money would be added to your available balance. If it’s fake, the money would be removed from your account.   Sadly, most members of the public are not aware of this fact. Once many people see credit alerts from their banks, they believe it’s real money and they fall into traps. And scammers know that most people don’t know.   HOW BANKS AID AND ABET SCAMMERS Some banks will send credits alert to you, as soon as a check is deposited into your account. This is wrong, and it’s the loophole that the scammers capitalize on. Why should banks send credits alerts for checks that have not been cleared (checks that have not been confirmed)?   It currency takes up to 48 hours to confirm a check or draft and banks should not send alerts to their customers until that is done. So, if the checks are later proven to be forged/spurious, the money would then be removed from your account. Many customers are not aware of this.   Sane employees of sane banks, know that it saves a lot of things, when a check/bank draft is confirmed before alerting customers. If the one who pays, or the payee is really in a hurry, then they should look for other ways to transfer money. Yes, there are other and better ways to transfer money… And insisting on draft/check should raise suspicion.   A bank that alerts customers without confirming a check is really adding and abetting scammers.   SCAMMERS ARE DIFFICULT TO CATCH Yes, scammers are difficult to catch. Be suspicious of anyone who changes their numbers too often. Once they dupe someone and the person is threatening them, they remove the SIM and that person can never reach them again.   A scammer can pay one-year house rent and spend only a few months  - only to change accommodations. Changing offices is not a big deal to them. They try their best to erase all traces to them and they do their best not to come in your way again, forever.   They’re good at forging documents and using fake addresses and fake things. Until you’re convinced that you’ve been duped, they’ll be giving you guarantee that all is well, and no problem and anything going wrong would be corrected.   Meanwhile, while they’re fooling you that there’s no problem, they’re packing away from their locations.   I can tell you that some (and most of these scammers) are married with children. Some of them are elderly people. Some of them are really gentlemen in society and they still dupe people.   They know about the loopholes in Nigerian laws and they know that if you can even catch one of them, you can never catch the rest of them.   WHAT NIGERIAN BANKS AND CBN CAN DO CBN should instruct Nigerian banks that they should stop giving alerts to customers until the bank drafts and checks paid into their accounts, are confirmed to be valid. If a customer or those who may think they’re in a hurry, then they should use an electronic method or direct cash deposit to pay.   Yes, if they think they cannot wait for 48 hours or you can’t wait for 48 hours, for the bank draft to be cleared, then they should use another means of payment.   In this digital/electronics payment age, when banking technology has advanced so much, how can someone insist on using a bank draft or check to pay people?   Bank officials that don’t alert customers or put “locked” credits in their accounts until the checks have been cleared, are saving lots of lives. Bank officials that send credits alerts, when checks/drafts have not been cleared, are really not doing the right thing.   When banks start to refuse to credit or alert any customers (based on drafts or checks brought in their names), until the checks and the drafts are cleared and confirmed to be genuine, then scammers who forge checks and drafts will go out of the business. That’s the only way.   WHAT SCAMMERS DO AND HOW THEY BEHAVE When people want to scam you, they usually pose as honest, dependable and trustworthy people. They do everything in their capacity to prove to you that you’re safe when doing business with them.   They’ll always tell you that they’ve been duped in the past, and they don’t want to be duped again. They’ll be asking you to confirm that you’re honest and safe to do things with.   They pretend to be very religious.   They pose like lawyers, accountants, bishops, imams, etc. They claim to be holding very high positions in society. They claim to have international experience and connections. They “prove” to be close friends with those who’re working at Chevron, Head of Bureau the Change or a senior nurse at LUTH. etc.   They put on corporate dresses and use cars to deceive people.   They pretend to be who they’re not. They assume titles of the positions you respect. They spend a lot of energy, days and resources (which could have been channeled into other productive things) trying to dupe you.   The best way they get you is through someone you know very well. They may be a family member, a church member, a neighbor, a friend, a customer, etc. Someone you think you can trust. They will come to you through that person, as the one who introduces them to you. You won’t know that the person has a money sharing deal with the scammers.   The premise is: The person you know, who introduces others to you, usually for business or contracts or projects, is presumed by you, as someone who will not deliberately betray you, because you’ve been dealing together for some time.   Some of them may call you through the phone number of the person you know, who introduces you to them.   Sometimes, they insist on using drafts or checks only, to pay you, for a flimsy reason. No matter how, they won’t give up on you until they succeed in duping you.   You won’t know what people are capable of doing, until you find yourself at their mercy.   The best thing is not to fall into their traps in the first place.     HOW THE PUBLIC CAN PREVENT THIS SCAM One of the most effective ways to stop these scoundrels from their usual business and from destroying people’s life, is to create awareness and educate the public on how to guard themselves against these people.   1.         No matter what they say… No matter what they claim to be… No matter where they come from… No matter how they try to convince you… NEVER NEVER accept bank draft or check payment from anybody or any company or organization. Never allow such a thing to be used to pay money into your account.   2.         If no-one can do business with you unless they use a check or a bank draft, please forget about that business, no matter how “safe,” attractive or lucrative it may be.   3.         If they cannot pay by cash or electronic money transfer, then they should forget about doing business with you. Or they can use the draft to pay one of their own people, and then the person can pay you with cash or electronic transfer.   4.         Prevention is better than cure. It’s better to be safe than to be sorry. It’s better not to make money or not to do business, than to do what you will regret for the rest of your life.   5.         If you must accept a bank draft or a check, please disregard any alerts that come to you in any form. Wait for at least, 72 business hours, and then, contact your account officer to confirm if the money from that check has been cleared and added to your available balance. You must ensure that you are able to use that money before you deliver anything to those who used the checks/drafts to pay.   Beware of anyone making it seem to be in a hurry to do business with you. If they’re really in a hurry, then they must use another means other than a bank draft or check to pay you. Never release anything or send anything until you’re able to confirm that you’re completely safe.   Please save people from penury and financial ruin. Save them from pains and losses. Share this information on websites, social media, WhatsApp, Skype, Telegram and Facebook groups.   Forward it to your exchangers and their customers and all those who deal in goods and services in return for payment. You don’t know whether the next person you’ll save is your loved one. Save someone today with this information.   Thanks for reading….
    • Hi everyone, The latest Commitments of Traders review is out. Platinum COT Change (52W) / C - 18%, LS – 20% / FTG Score / D -7.4, W -19.4, M -16.1 / The larger than average change in Large Specs and Commercials positions, together with the negative reading from FTG suggest we could see some weakness from platinum in the coming days… Bitcoin (CME) COT Extreme / LS – All Time COT extreme / FTG Score / D 25.0, W 60.3, M 24.5 / We do not have such a history of cot data to be certain that we have cot signal that we can act upon, nevertheless it is interesting to see Large specs continuing to increase their net short positions, seeing Commercials net short and only Small specs taking the long side of the market. The all time extreme signal in LS would be generally considered a bullish signal, small spec net long a bearish FTG scores, especially the weekly show significant support for further rally in the market. Canadian Dollar COT Extreme / C - 72, LS – 68 report COT extreme / FTG Score / D 37.5, W -26.2, M -25.7 / In the past few weeks we have witnessed traders changing their positions towards a more bearish situation. The example from May 2017 to October the same year suggests that we could see this trend continuing for some time before the market dips back down. Daily FTG scores seem to back this, although the weekly and monthly already expect changes happening to the CAD. All the best,  Dunstan COT Charts FOREX Trading Futures Trading
    • Bitcoin Price Prediction: Long-term (BTC) Value Forecast – July 20   BTC/USD Long-term Trend: Ranging Resistance  $10,500, $11,000, $11,500 Support levels: $10,000, $9,500, $9,000   The BTC/USD pair had been trading in the bearish trend zone after facing resistance at the $13,000 overhead resistance level. On July 10, the BTC price reached a high of $13,000 but was resisted. The bears broke the 12-day EMA and the 26-day EMA as the price fell to the bearish trend zone. In the previous resistances, the price fell within the bullish trend zone. On the upside, if the bulls break above the EMAs, the crypto’s price will rise to retest the $13,000 resistance level.   On the other hand, if the bulls fail to break above the EMAs.  the crypto's price  will commence a range bound move below the EMAs,Meanwhile, the MACD line, and the signal line are above the zero line which indicates a buy signal.     The views and opinions expressed here do not reflect that of BitcoinExchangeGuide.com and do not constitute financial advice. Always do your own research   Source:  https://bitcoinexchangeguide.com
×
×
  • Create New...

Important Information

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