Chake replies to: Simple Mean Reversion


I just read this Simple mean reversion, and i found it very very smart technique. I appreciate it. I have a good feeling about this. Now im learning how to make the right price action with this technique frequently. {image}

Mean reversion in my experience tended to suit the turtle pairs such as EURCHF and EURGBP and EURUSD.

Indeed it still might depending on the actual strategy used.

If Equity is high and lot sizing is relatively small then try the volatile pairs such as GJ, GA, GN, EN etc.

Here are a few key points from my own analysis of mean reversion:

1. Match the symbol against its session (does not always work out to plan but very often it does);

2. I found it very important to form an appreciation of the average trading session ranges for the symbol of interest;

3. How far price moves on average in a relevant part of the trading session (Use Excel or an indicator to record this data !);

4. Think about SD’s, and placing hard stops just outside say 2 SDs or what ever standard deviation multiple you determine as appropriate;
[I examine the outliers very closely here and attempt to determine their cause, the reason may not always be so obvious]

5. Be aware of upcoming news not only on the same day but the next day (avoid trading via mean reversion in this situation);
[Sometimes PA will rip around and bring your cycle of trades into a major win but at what risk ??]

6. Next critical part of the puzzle is to formulate a Progressive Lot Sequence, that is each additional lot size is greater than the previous one;
[Trade 1=0.01, Trade 2= 0.02, Trade 3=0.03 or non-linear approach, more risky but requires a less shallower pullback for a net +ve outcome]
[You must know your average ranges and plan the PLS around it based mainly on your risk allocation]

7. SL placement just beyond a few SD’s gives you some comfort but if price keeps trending, the reuslt will be a stop out;
[if you trade smaller volume think about 3*SD’s, make sure it fits with your risk tolerance level]

Trend is your friend in the early stages but if it fails to bend then it may be the end !

What this is saying is that you need a trend to generate the entries afterwhich you need a big enough pullback in PA to exit in positive terrritory.

So far with testing the approach offered in this thread I have found one pair to be the stellar performer … EURUSD.

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This may not always be the case eith EURUSD and there are probably several other pairs yet to be discovered.

Trading EURUSD provides lower trading costs due to tighter spread in general and if you use a H1 TF you can trade it manually.


Master your Mind then Master your Trades

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