It would be nice if some other mean reversion traders could post some trade descriptions (entries, stops, targets, final result) or chart of some trades for comparison. I've seen RTM traders take some big hits. I avoid that using the RTM style I outlined here, because RTM is just one of several strategies I use. But if all you do is RTM and you use a fading/average down style, the big hits are just a cost of doing business, because if you're an experienced RTM trader, your win rate is usually 80-90%. It would be interesting to get input here for setups that are especially successful vs setups that can really hurt the RTM trader. For example it's not a good idea to fade a strong move off raised or lowered guidance, at least not on the day of the news. Guidance is what the smart money is basing investing decisions on and price will often go much farther up or down than you expect on the news day. Strong moves based on rumor or hope are often some of the best RTM setups. An example is a day back in April when the for-profit education stocks all ran up like crazy because of some bit of news that might possibly affect something that wasn't set in stone in the first place. I don't remember the details but it was not news that had any real impact, it was news that inspired potential hope and those stocks gapped up and ran hard into the close. The next morning when the run up failed to continue, it was an excellent RTM trade, with price retracing the previous day's entire move and even dipping into the gap zone after that. I chose one of the priciest of those stocks (ESI), kept my size very small and had a nearly $700 gain.
NoDoji knows her shit. In the interest of furthering discussion, here some are some setups I saw today. Long BJ at 43.04 this am. MOC out. Short ARNA at 3.35 this am. MOC out. Long DNDN at 29.43 this am. MOC out.
Some of the most consistent traders use RTM. Good to always have a trend following and a RTM system. RTM is not about entering in the middle of no where. Once you see price outside of something like bollinger bands you don't enter unless you have a strong level to enter against. Some very good trades happen when price moves outside and price hits a higher time frame support or resistance level.
OK, can someone fill me in here. When you use RTM, would you use a loose stop and a tight take profit to give the trade some time to work versus a trend technique?
For me, it basically boils down to fading the support/resistance levels on stocks "in-play", with the understanding that I may need to: (1) keep my stops tight and re-enter at a better price; (2) scale-in a time or two at the most; (3) reverse direction from a fade to a trend; or (4) hedge and adjust the hedge based on the market's momentum. My discretion, based upon various market factors will determine how I adjust the fade. I try to trade an entire basket simultaneously for diversificaton. Walt
I trade an entire basket simultaneously for diversification. I will hedge the basket with an ETF. I will hedge my ETF with an index futures. And I will protect my index futures with buying or selling a call option. Man... I am quadruply protected! (don't take it too seriously...)
I don't think this is necessarily true. You are assuming that there *is* a trend. The market can be stuck in range. (70% of the time per Dr. Alexander Elder). And in that environment, RTM would do well. The enemy to RTM is a break out/down. "Trend" or "Range" depends on the time-frame in consideration. A "trend" in lower time-frame may just be a "range" in a higher time-frame.
I feel that, rather, it is "Guidance is what the ***big money*** is basing investing decisions". Big may not equate to smart.