why people bad mouth mean reversion strategies?

Discussion in 'Strategy Development' started by traderzhangSan, Jun 30, 2010.

  1. Most people say trend following works better because you could potentially catch big trend even winning odds might be lower than 50%.

    However it is not that easy to catch the trend even your bet is right. quite simply, along the trend you could be stopped out if you use trailing stop.

    On the other hand, mean reversion trade has higher winning probability and you could catch the trend as well(reversed trend).

    I don't think the above two styles are necessarily mutual exclusive. They could be very much compatible.
  2. Retief


    Why don't you use both? Identify a longer term trend in a security. Then use a mean reversion strategy upon shorter counter-trends, but only take mean reversion trades in the direction of the longer term trend. This should keep you from getting hurt too bad with the counter-term trading and put you in a position to take advantage of the longer term trend.
  3. +1
  4. NoDoji


    I do both as well. I will trade with an established trend, looking to enter short on lower highs or long on higher lows, also on price bar breakouts, 20-bar MA breakouts and high/low breakouts in the direction of the trend.

    But counter-tend fades off very strong moves can be every bit as profitable and often put you in the direction of the new trend early on. I prefer to play these as soon as price stalls and with a tight stop; others will average as price continues to move against them, looking for the eventual reversion to mean. That is a more dangerous method for the undisciplined.
  5. If you spent enough time on any trading message board, you'd never develop a consensus of opinion to declare that any one particular trading strategy was singled out as inferior. In other words, all of the opinions, just like most of the strategies are "collective noise". For every guy who derides mean reversion, there are an equal number of guys who will argue that trading with a "trend" although no one will define it is just as useless.

    I suppose one camp can be more vocal depending on a particular point in time, namely during last month's 'flash crash". Usually, everybody comes out of the woodwork at opportunistic moments to further their agenda.

    It's been that way for a long long time...
  6. Why do people start useless threads with unproven titles designed to make themselves look like unknowledgeable traders?
  7. Because they use it on an index instead of specific stocks. Index changes between mean reversion and trend. However there are some stocks which up the %, some stocks mean-reverse statistically more then opthers, while others trend better. Just like you want to buy breakout on momentum stocks and not stocks with low beta. COMMON SENSE
  8. Retief


    Give the OP a break. I don't think English is his native language and not everyone is a big swinging dick. The beginning of wisdom is kindness.
  9. Who is bad mouthing mean reversion?
  10. u21c3f6



    Here's some of the problem as I see it. First you have many posters that have used a strategy, could not profit from it and then proceed to tell everyone that you can't profit using that strategy. Then you have other posters that may be using a different strategy successfully and that blinds them to the fact that there are other strategies that can be used profitably and not just the one they are using.

    Very often I will read posts stating that one should never do this or that and it is exactly what I am doing profitably.

    The "trick" to this whole thing is to find a strategy that you can apply profitably whether others can do it or not.

    #10     Jun 30, 2010