Hi guys, I am looking into mean reversion trading, specifically for Forex markets. I am looking to identify the setups on 4 hour chart, this is due to my availability. Also using the 1 hour chart to zoom on the mean reversion move to help me with decision making. I am relatively comfortable with the rules of how I should be managing the trade, so won't be asking questions about that. Instead, I would like some general advice on how to identify high probability mean reversion setups. In the "strong move" attachment, in the last several candle we see what looks like a strong move. In the "mean reversion" attachment, in the last several candles we see what looks like a much slower move in the opposite direction and possibly a good opportunity to enter. I will split my question in 3 parts: 1) What guidelines/rules/metrics should be used to identify the strong moves that precede the mean reversion move? In the "strong move" attachment, to me the strong move is fairly obvious, but to another person it might not be. So some solid rules would be good. 2) Does the mean reversion move have some sort of expiration for the purpose of entering the trade, both in terms of price covered and time (relative to the strong move)? For example in the "mean reversion move" attachment, you could enter on the last candle seen on the chart. But what if I decided to enter after another several candles of the same size were formed, while the move is continuing down? See attachment A. Would this necessarily mean that the probability of this particular trade giving me profit is now much different? 3) What price action and the duration of price action is acceptable between the strong move and the mean reversion move? In this particular example the mean reversion move started pretty much after the end of strong move, with no price action events in between. But in other cases, we could have something in between, such as a double top, or the market going flat for some time (attachments 3 and 4). Any suggestions from people who successfully trade mean reversion will be greatly appreciated.
You should test for mean reversion . You will be suprised to see that most forex pairs don't exhibit MR tendencies
I'm far from an expert, but MR is considerably easier with equities IMO. And in particular, broad index ETFs. Equities have a value (usually) and are somewhat "protected" by central banks and political parties that want to be re elected. Not to mention, easily enough pushed up and down by trader's fear and greed actions. But, as always, know your limits. Over leverage kills accounts. Good trading to all.
I would only consider VWAP as a TP and not as an entry strategy.. Actually, the only mean reversion that I can think of, is when price is settling after heavy news impact.
Might find some ideas in this thread. https://www.forexfactory.com/thread/564227-southern-cross-trader
Would this short be a mean reversion trade? Wouldn't any decent directional trade by definition be a mean excursion or a mean reversion in relation to one moving average or another. Are you looking to pairs trade using some mean reversion Odsen? https://www.elitetrader.com/et/threads/interesting-search-terms.365486/page-11#post-5782125
hedge funds spend $millions for this knowledge, yes forex does mean revert, the architecture I use is counter trend, mean reversion is a subset of that, 1) there are no solid (technical) rules as the markets are designed to make sure what works today does not work next week or next month as it requires contextual analysis, 2) yes it expires but again it is contextual, 3) again it is contextual. Some smart people I know built contextual analysis in to their algos, you have to do this manually and the rule is actually very simple, 10,000 hours (Outliers) which the algos offset to zero, it's fun to watch
Why do you remove the data axis (price & bottom info) from your charts...do you trade that way ? It's important info for the "contextual analysis" especially when intraday market tendencies are at work during key global events. As someone else stated before me, what works today is no guarantee it will work tomorrow. Thus, whatever rules you design...you need to be able to adapt and change especially when the trading environment changes for whatever reasons. wrbtrader
As someone else stated before me, what works today is no guarantee it will work tomorrow. You can never be surprised enough by the great pyramid of life, their never directly referring back to the source even though it's only one comment higher in the attempt to gain credit for that knowledge. There is nothing more amusing that giving people the exact "it works" information with no strings attached and sitting back while they fumble around like a drunk womble looking for the 'answer' enabled by everyone because that's exactly how they didn't did do it
Your meanreversalmove.jpg could end up as trendcontinuationmove.jpg or strongmove.jpg Your strongmove.jpg could end up as meanreversalmove.jpg Is the trend going to continue, or reverse direction / mean reversion? Is it going to move a lot, or just a little? Is the market going to retrace just a little, or retrace massively or none at all? All these depend on the big investors/traders ... No amount of indicators will help you answer these questions.