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.

zdo

At Your 'mean'

Recommended Posts

Question setup:

For commonality, “the mean” in the question below is your own ‘mean’ – a place where price has ‘reverted back to’. That means it’s not specifically or necessarily a central tendency (like an average) or a measure of valuation (like a value area) or whatever … it’s simply whatever your ‘mean’ is.

There are piles and piles of threads in trading forums on reversion to the mean methods, techniques, strategies, and tactics. Even though traders don’t typically use the term, there are also piles and piles of threads on ‘excursion from the mean’ methods, techniques, strategies, and tactics.

For the most part these are described as new trend if price has just properly crossed through your ‘mean’ or resumption of trend after correction if the ‘mean’ held, etc. etc. but in essence they are about excursion from 'mean’

It may literally fall into the stupid question bin and if you don’t use a ‘mean’ or make trading decisions or executions at your ‘mean’ as described above, then please ignore question. And thanks...

 

Now finally the question - Do you have something that is distinct / atypical that you do when price comes back to your mean?

Share this post


Link to post
Share on other sites

there are many interpretations of mean....

 

arithmetic mean

 

geometric mean

 

psychological mean

 

philosophical mean

 

dynamic mean

 

and so on ... ... ... ...

 

 

 

the best qualified mean in the market is the daily closing price.

Share this post


Link to post
Share on other sites

i have also wondered this over the years and have generally ignored it because the mean is usually a moving number as well - so the mean can actually move to where you bought or sold it rather than the price reverting back to the mean. Plus its another personal measure.

 

I dont trade this way, but the closest I have seen someone incorporate this successfully is in two ways - bollinger bands using it as a level to reduce positions or exit them at extreme (by their measure) excursions from the previous price levels, and I have seen some others that use it as an entry zone for trend following and trying to time reversals in a trend back to a MA (similar to Option timers project here on TL) http://www.traderslaboratory.com/forums/trading-psychology/10158-optiontimers-project-25.html

Share this post


Link to post
Share on other sites
there are many interpretations of mean....

 

arithmetic mean

 

geometric mean

 

psychological mean

 

philosophical mean

 

dynamic mean

 

and so on ... ... ... ...

 

 

 

the best qualified mean in the market is the daily closing price.

 

Thanks ... surprised you forgot to mention the golden mean...

Also, some might argue with you that the best qualified mean is the opening price ... instead of the closing price...

 

anyways re the "many interpretaions" and

 

One more time - just for you Tams :haha:

 

"For commonality, “the mean” in the question below is your own ‘mean’ – a place where price has ‘reverted back to’. That means it’s not specifically or necessarily a central tendency (like an average) or a measure of valuation (like a value area) or whatever … it’s simply whatever your ‘mean’ is."

 

Thanks for any help with the question you got for us.

Share this post


Link to post
Share on other sites
Do you have something that is distinct / atypical that you do when price comes back to your mean?

 

I don't know if what I do is distinct or atypical. I have no way of determining what is typical. I guess the typical person looses money, so if someday I make money, I suppose I'll be atypical. :rofl:

 

This question makes me think of situations where the market decides it was going in the wrong direction, and suddenly has a different bias. Maybe due to unexpected news.

 

If price changes direction and very quickly returns to "The Mean", I guess I expect it to continue to previous levels very quickly. It would be like if you suddenly realized that you got the value wrong, and something really was worth that price. Oops! Better get back to the previous price as fast as possible.

Share this post


Link to post
Share on other sites

Do you have something that is distinct / atypical that you do when price comes back to your mean?

 

re-validate my mean

 

PS: don't know though if its distinct/atypical. with zillions of perceptions and opinions thrown around forums I feel everything I do is distinct :rofl:

Share this post


Link to post
Share on other sites

My two cents...

 

The is no particular evidence that prices revert to the mean... look at Apple.

 

However from a statistical standpoint there *is* evidence that *volatility*

reverts to the mean. Volatility can really only be taken advantage of in the

world of options. When volatility reverts to the mean then options are becoming

more overvalued or undervalued depending on whether implied volatility is above

or below that mean. Then option traders switch from selling premium to buying

premium or vice versa.

Share this post


Link to post
Share on other sites
My two cents...

 

The is no particular evidence that prices revert to the mean... look at Apple.

 

....

 

that's because you are looking for a slow fractal mean in a fast fractal market.

Share this post


Link to post
Share on other sites
...

This question makes me think of situations where the market decides it was going in the wrong direction, and suddenly has a different bias. Maybe due to unexpected news.

 

If price changes direction and very quickly returns to "The Mean", I guess I expect it to continue to previous levels very quickly. It would be like if you suddenly realized that you got the value wrong, and something really was worth that price. Oops! Better get back to the previous price as fast as possible.

 

Tradewinds,

 

Real time example to see if I get what you're saying - the EJ has quickly returned to a cluster of 'means' (see rectangle of attached 180 minute EURJPY) Are you saying you'd play it to go back to 114 ? Thanks

 

zdo

means.jpg.1c410a7c6d64309aab15071b5dd1d347.jpg

Share this post


Link to post
Share on other sites
that's because you are looking for a slow fractal mean in a fast fractal market.

 

It's true I'm talking about longer time frames, but even on short time frames prices tend to oscillate around a mean. When prices don't move through the mean but bounce off in a rejection pattern, that is usually a pretty good signal to trade in the direction of the bounce.

 

The traders "out there" watch various moving averages very carefully and so when prices get near them you might want to be deciding if any crowd-induced price action is occurring.

Share this post


Link to post
Share on other sites
Tradewinds,

 

Real time example to see if I get what you're saying - the EJ has quickly returned to a cluster of 'means' (see rectangle of attached 180 minute EURJPY) Are you saying you'd play it to go back to 114 ? Thanks

 

zdo

 

I would expect it to test a support/resistance level first, say 112.25 (see prices on 7/20 and 7/24). After the August drop it did that (to the 110.50 area) and after the 8/4 jump it's testing the S/R level from 7/28. 114 just seems too optimistic to me, particularly since it spent little time there.

Share this post


Link to post
Share on other sites

Tams,

If you have time, could you please define / amplify how you are using the terms

"slow fractal mean" and

"fast fractal market"

??

Thanks

Share this post


Link to post
Share on other sites
My two cents...

 

The is no particular evidence that prices revert to the mean... look at Apple.

....

 

that's because you are looking for a slow fractal mean in a fast fractal market.

 

Tams,

If you have time, could you please define / amplify how you are using the terms

"slow fractal mean" and

"fast fractal market"

??

Thanks

 

this might help

 

attachment.php?attachmentid=25590&stc=1&d=1312482392

fractal.jpg.a53d942b711ca7835f4c0ba5807f6001.jpg

Share this post


Link to post
Share on other sites
I would expect it to test a support/resistance level first, say 112.25 (see prices on 7/20 and 7/24). After the August drop it did that (to the 110.50 area) and after the 8/4 jump it's testing the S/R level from 7/28. 114 just seems too optimistic to me, particularly since it spent little time there.

 

TradeWinds, After your general idea, I wasn't expecting such a detailed answer . Anyways - thank you very much ;)

TradeWinds :confused:

Edited by zdo

Share this post


Link to post
Share on other sites
No, I'm not Tradewinds, just some guy who butted in ;)

 

calsprdr, just messin' with you...

 

My illustration was a question to see if I had the right idea of what TradeWinds was saying. I could care less about how that particular situation works out.

 

Seriously, re

114 just seems too optimistic to me, particularly since it spent little time there
how long it spent there, etc. was part of my question about the whole concept to him..

Share this post


Link to post
Share on other sites
this might help

 

nonvrbl comunikshn

 

see attached

 

 

Trying to keep up, Tams …

Does these pictures have anything to do with the OP question? Thanks.

WithFastMeanMoved.jpg.81aefd371eb2c520c3abf0c703f1e12f.jpg

Share this post


Link to post
Share on other sites

The question is the answer…

Generally (and somewhat in terms of trends), I am repeatedly assessing the probabilities of whether the current move back to my ‘mean’ is a correction and the mean ‘value’ will hold and the current trend resume or price will cross mean and a new ‘trend’ form with my ‘mean’ / ‘value’ now moving in the other direction from the direction it was moving at the most recent extreme before the reversion.

 

One of my almost daily practices is to ask myself “what can I do tomorrow to make myself an even better trader?” and/or “what can I do today to trade even better?”

In that spirit, this question unfolded about certain systems as it occurred to me that in the evolution of my skills and platform representations, I’ve become more ‘unconsciously competent’ and precise at assessing, measuring, and trading ‘reversion to’ than I have at ‘excursion from’ ‘means’. Proficiency with the ‘excursion from’ ‘mean’ trading is less elegant and results are also less consistent– intermittently / sometimes almost automatic, other times out of phase… in certain systems.

 

…will try to refine the question. To start, we can remove the “distinctive” part from the question… was trying to avoid a rehash of methods “everybody” already knows about… and the question is still not about valuation or quantifying a valuation or where or how to place a ‘mean’. Thanks all.

The question is the answer…

Share this post


Link to post
Share on other sites

One of my almost daily practices is to ask myself “what can I do tomorrow to make myself an even better trader?” and/or “what can I do today to trade even better?”

In that spirit, this question unfolded about certain systems as it occurred to me that in the evolution of my skills and platform representations, I’ve become more ‘unconsciously competent’ and precise at assessing, measuring, and trading ‘reversion to’ than I have at ‘excursion from’ ‘means’. Proficiency with the ‘excursion from’ ‘mean’ trading is less elegant and results are also less consistent– intermittently / sometimes almost automatic, other times out of phase… in certain systems.

 

…will try to refine the question. To start, we can remove the “distinctive” part from the question… was trying to avoid a rehash of methods “everybody” already knows about… and the question is still not about valuation or quantifying a valuation or where or how to place a ‘mean’. Thanks all.

The question is the answer…

 

There is two parts (or three really if you think that Tams and Zdo are mean reverting to some sort of super average being (does super average exist ??))

 

Part one - the method of trading - mean reversion or mean excursion

Part two - your definition of mean

 

both a personal, both adoptable......

 

When you boil it down, two traders can use the same mean, with different methods, and both get good results - it then becomes a matter of cutting losses for both when wrong, running profits, or taking profits will differ between the two, and the end stats will be highly likely to be different in terms of risk:reward, and winners v loosers stats....assuming this is measured over a wide enough time frame and various markets.

Share this post


Link to post
Share on other sites
Tradewinds,

 

Real time example to see if I get what you're saying - the EJ has quickly returned to a cluster of 'means' (see rectangle of attached 180 minute EURJPY) Are you saying you'd play it to go back to 114 ? Thanks

 

zdo

 

Whenever price suddenly surges, like in your attached chart, I tend to have a bias towards believing there was some underlying reason that will continue to be valid in the very short term. So, I would seriously consider that the EJ would go back to 114, BUT it depends. I guess the scenarios would be:

 

  • Huge price move up - No major news at the price move, price reverts to mean
  • Huge price move up at the point of major news, price reverts to mean
  • Huge price move up on good major news, and more major news came out shortly afterwards that was bad, and price reverted to the mean.

 

If the price spiked up hard with no major news, I tend to have a bias towards believing that the underlying reason for the big price move will remain valid for the very immediate short term. In this case, I would have a bias towards believing there was a high probability that price would return to 114.

 

If the news came out immediately before the huge spike up, AND there is no other major news coming out, or not coming out for a few hours, I would also have a bias towards the price returning to 114.

 

If the huge spike up was good news, and the huge spike down was bad news, I would not assume that any levels were going to be revisited. In this last case, my assumption is that the reversion to the mean was an, "Oops! We got it wrong! Better get back to the mean as fast as possible."

 

In the first two cases, the reversion to the mean is not an "Oops! We got it wrong." I think of it as simply the market clearing out transactions and reverting to the mean before the next move up.

 

I use NYSE Internals to help me understand what the ES is doing. So I'd also be looking at the Advancers/Decliners and Up Volume/Down Volume for subtle clues as to what kind of "pressure" was being exerted on the price.

 

I know nothing about Forex, and have no desire to trade it unless there was something other than price that correlated to price movements.

 

Of course, it could get more complicated. You could look at what was happening on the longer term. Multi-day levels. Weekly level.

 

There's also the issue of volatility. If there is bigger than normal price moves, the trends aren't any different, it's just that the scale is different.

Edited by Tradewinds

Share this post


Link to post
Share on other sites

Hey guys… interesting discussion. What I have to add is more a question than a statement; please keep that in mind. My understanding of mean reversion and how it would be represented in market price on a chart would be more of a stair step pattern rather than a moving average pattern, and would represent a market consensus on price through each cycle of buying and selling (high to low - low to high… whatever the time frame).

 

In a downtrend, selling momentum would carry the price below the mean - a measurement further below the mean than the high measurement was above it. In the next down leg, the mean would have been dragged lower due to the momentum from the previous move down.

 

A market reversal and beginning of an uptrend would begin as buyers then moved the price measurement further above the mean than the measurement from last low. Subsequently, as buying momentum continues to move the price a greater measurement from the mean than the last swing low measurement the price continues higher until it can no longer move the price greater than the measurement from the last swing low… then the cycle begins again.

 

My understanding… as price moves through cycles of high to low (low to high) the market consensus of the "mean" moves with the trend in a stair step fashion, with price falling through the mean, or rising above it. Someone square me away if the notion is ill conceived.

Share this post


Link to post
Share on other sites
...more a question than a statement; please keep that in mind. My understanding of mean reversion and how it would be represented in market price on a chart would be more of a stair step pattern rather than a moving average pattern, and would represent a market consensus on price through each cycle of buying and selling (high to low - low to high… whatever the time frame).

 

...

 

My understanding… as price moves through cycles of high to low (low to high) the market consensus of the "mean" moves with the trend in a stair step fashion, with price falling through the mean, or rising above it. Someone square me away if the notion is ill conceived.

 

Your understanding that the ‘means’ (whether they be moving averages, stairsteps, or whatever.) move with ( and lag ) the trend is generally accepted across the board and is not ill concieved. The notion of 'value area' moving in discrete quanta is probably more useful than the concept of a 'mean' moving continuously and more smoothly.

I would suggest you look a little deeper into your preconceptions about “market consensus of the "mean"” though…

 

“Mean reversion” has been thoroughly treated in the trading literature. “Mean excursion”, too, although not explicitly in those terms as much. But, besides MA crossover crap and content about retracement to 'mean' , specifics of methods, techniques, etc. ie basically taking trades at one’s ‘mean’ hasn’t garnered much discussion. That is what this thread is about.

 

Folks, should we infer from the lack of exposition elsewhere and dearth of comment on methods in this thread that traders are making most entries before or after price has contacted ‘mean’, but few are making trades at their ‘mean’? Boys if that's the case...

Share this post


Link to post
Share on other sites

Folks, should we infer from the lack of exposition elsewhere and dearth of comment on methods in this thread that traders are making most entries before or after price has contacted ‘mean’, but few are making trades at their ‘mean’? Boys if that's the case...

 

Boys, Oh Boys, Oh Boys! It's makes you wonder! :rofl:

 

I really only care about the mean reversion after an unusually big price move in a short period of time, or an extended, steady price move. Other than that I'm looking to exit at price extremes, and re-enter at a better price if I think the trend will continue. If i don't think the trend will continue, I'm looking to enter at price extremes.

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

    • How's about other crypto exchanges? Are all they banned in your country or only Binance?
    • Be careful who you blame.   I can tell you one thing for sure.   Effective traders don’t blame others when things start to go wrong.   You can hang onto your tendency to play the victim, or the martyr… but if you want to achieve in trading, you have to be prepared to take responsibility.   People assign reasons to outcomes, whether based on internal or external factors.   When traders face losses, it's common for them to blame bad luck, poor advice, or other external factors, rather than reflecting on their own personal attributes like arrogance, fear, or greed.   This is a challenging lesson to grasp in your trading journey, but one that holds immense value.   This is called attribution theory. Taking responsibility for your actions is the key to improving your trading skills. Pause and ask yourself - What role did I play in my financial decisions?   After all, you were the one who listened to that source, and decided to act on that trade based on the rumour. Attributing results solely to external circumstances is what is known as having an ‘external locus of control’.   It's a concept coined by psychologist Julian Rotter in 1954. A trader with an external locus of control might say, "I made a profit because the markets are currently favourable."   Instead, strive to develop an "internal locus of control" and take ownership of your actions.   Assume that all trading results are within your realm of responsibility and actively seek ways to improve your own behaviour.   This is the fastest route to enhancing your trading abilities. A trader with an internal locus of control might proudly state, "My equity curve is rising because I am a disciplined trader who faithfully follows my trading plan." Author: Louise Bedford Source: https://www.tradinggame.com.au/
    • SELF IMPROVEMENT.   The whole self-help industry began when Dale Carnegie published How to Win Friends and Influence People in 1936. Then came other classics like Think And Grow Rich by Napoleon Hill, Awaken the Giant Within by Tony Robbins toward the end of the century.   Today, teaching people how to improve themselves is a business. A pure ruthless business where some people sell utter bullshit.   There are broke Instagrammers and YouTubers with literally no solid background teaching men how to be attractive to women, how to begin a start-up, how to become successful — most of these guys speaking nothing more than hollow motivational words and cliche stuff. They waste your time. Some of these people who present themselves as hugely successful also give talks and write books.   There are so many books on financial advice, self-improvement, love, etc and some people actually try to read them. They are a waste of time, mostly.   When you start reading a dozen books on finance you realize that they all say the same stuff.   You are not going to live forever in the learning phase. Don't procrastinate by reading bull-shit or the same good knowledge in 10 books. What we ought to do is choose wisely.   Yes. A good book can change your life, given you do what it asks you to do.   All the books I have named up to now are worthy of reading. Tim Ferriss, Simon Sinek, Robert Greene — these guys are worthy of reading. These guys teach what others don't. Their books are unique and actually, come from relevant and successful people.   When Richard Branson writes a book about entrepreneurship, go read it. Every line in that book is said by one of the greatest entrepreneurs of our time.   When a Chinese millionaire( he claims to be) Youtuber who releases a video titled “Why reading books keeps you broke” and a year later another one “My recommendation of books for grand success” you should be wise to tell him to jump from Victoria Falls.   These self-improvement gurus sell you delusions.   They say they have those little tricks that only they know that if you use, everything in your life will be perfect. Those little tricks. We are just “making of a to-do-list before sleeping” away from becoming the next Bill Gates.   There are no little tricks.   There is no success-mantra.   Self-improvement is a trap for 99% of the people. You can't do that unless you are very, very strong.   If you are looking for easy ways, you will only keep wasting your time forgetting that your time on this planet is limited, as alive humans that is.   Also, I feel that people who claim to read like a book a day or promote it are idiots. You retain nothing. When you do read a good book, you read slow, sometimes a whole paragraph, again and again, dwelling on it, trying to internalize its knowledge. You try to understand. You think. It takes time.   It's better to read a good book 10 times than 1000 stupid ones.   So be choosy. Read from the guys who actually know something, not some wannabe ‘influencers’.   Edit: Think And Grow Rich was written as a result of a project assigned to Napoleon Hill by Andrew Carnegie(the 2nd richest man in recent history). He was asked to study the most successful people on the planet and document which characteristics made them great. He did extensive work in studying hundreds of the most successful people of that time. The result was that little book.   Nowadays some people just study Instagram algorithms and think of themselves as a Dale Carnegie or Anthony Robbins. By Nupur Nishant, Quora Profits from free accurate cryptos signals: https://www.predictmag.com/    
    • there is no avoiding loses to be honest, its just how the market is. you win some and hopefully more, but u do lose some. 
    • $CSCO Cisco Systems stock, nice top of range breakout, from Stocks to Watch at https://stockconsultant.com/?CSCOSEPN Septerna stock watch for a bottom breakout, good upside price gap
×
×
  • Create New...

Important Information

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