Reversion to the mean only trading...

Discussion in 'Index Futures' started by MarkBrown, Nov 16, 2020.

  1. MarkBrown


    @ES - Converting indicators which often seem useless into a trading model.

    a.) it's the logic used to build the model not the indicators that make it successful.


    So it looks good but looks can be deceiving why not automated it?

    a.) the human eye will mislead you to look for big moves, but chipping is more profitable.


    Based on fixed ratio starting with 1 ES and levering with no additional risk up to 10 contracts.

    Only wins 57% of the time, run 24hrs a day non stop, 50k to 1,000,000. in 100 days.
    1 to 2 risk reward - yes 200 risked for 100 made "embrace the risk" opposite of the norm.

    Draw-down was less than 12%, so obviously I was disappointed with that. For years I tried incorporating reversion to the mean with trend trading and found it's better just to park when it's trending and capture the majority of the market action which is choppy action.

    Happy to answer questions and give insights to building your own model. Mark

    PS I have been running this system for over 15 years so it's not over over optimized, I just added the fixed ratio component to it otherwise it would have just made under 100k over the same 100 days.

    By contrast an always in model which incorporates both reversion to the mean and trending modes. Seems at first glance to make more money and it does but when you figure in the slippage and commissions of bidirectional trading you wind up with less. But it looks impressive to the eye.

    Last edited: Nov 16, 2020
  2. ET180


    I did something like this a long time ago. I was not able to find a profitable system though by combining simple common technical indicators without curve fitting. Looks like you have a slower oscillator and a faster oscillator. You seem to trade based on when the two signals line up within a certain threshold.
    MarkBrown likes this.
  3. Overnight


    Have you made any money with it live, and how much money would have you needed in your broker account to assure you did not get a margin call, based on the performance bond requirements though the testing period?
    MarkBrown likes this.
  4. MarkBrown


    I have in fact made money with it live, since the fills are opposite of market direction it actually performs better than testing. The exits are all hard coded profit targets and so are the stops which are twice as big as the pt.

    It had a staring allocation of 50k and it never exceeded 12% drawdown, but for managed accounts it would need at least 100k allocation. The beauty of the fixed ratio is you only add contracts as you make money to afford to add them. So adding contracts has no impact on the draw-down.
    yc47ib and SimpleMeLike like this.
  5. MarkBrown


    thank you for your comments i won't hold back much but i have to keep my edge lol

    there are two sets of channels a big one that captures trend and one that captures chop.

    then using the big channel i make an oscillator by subtracting the actual price from the distance of both the trend channel and the chop channel. differing levels of expansion cause different types of trades to happen. the very bottom oscillator has nothing to do with the model it's plotting open interest so sometimes i will increase and decrease position sizes etc.

    the other component is the t3 average with a slope function that basically plots a rate of change for stronger than usual movement. it also can independently fire off trades and looks for direction from the channels.
    SimpleMeLike and _terminus_ like this.
  6. Just yesterday, I came to the conclusion that the only trading strategy I would ever follow for the rest of my life would be reversion to the mean algorithms. So yes, I'm interested.

    What broker allows trading index futures with Expert Advisers? I've also bought several books on mql4 programming, but it's just as easy to pay someone on Fiverr to do the code and I can edit it as I see fit.
    Last edited: Nov 16, 2020
    MarkBrown likes this.
  7. MarkBrown


    Lot's of brokers around many on this forum.

    I tried to use as few smoothed indicators as I can, smoothness induces lag and nothing beats price action. I have always tried to use price based support and resistance without huge success. But finally I look at S/R as a benchmark and I been trading for so long, I know what I expect price to do and then just wrote signals around the S/R to validate that. Then of course I tested it and started slow making sure I was getting my price or better on fills.

    I would say get a fiver programmer and then mod it like you say is better than getting bogged down learning to program. I am self taught and started in the 70's so lot's of years there. Eventually you will need to learn but try and earn now and hire a staff if you want. Reversion ensures you the best fill price and I often will add as the market moves against the position up to 3 stages.
    farmerjohn1324 likes this.
  8. Are your channels Bollinger Bands?
  9. MarkBrown


    no they are based on purely price action only and patterned after the:

    Ned Davis / Martin Zweig 4% model

    ps thank you for your question if you have anymore please ask.
  10. volpri


    So you often average down?
    #10     Nov 16, 2020