Mean Reversion Strategies

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No.Heat

Moderators and avid readers of Elite Trader,

I'm interested in learning and hopefully understanding how profitable mean reversion strategies reach fruition.

Unfortunately my background is price action and trend following, therefore I'm not very knowledgeable in this department.

Any particular links in ET I could study to get a head start please post them here.

Much appreciated.

No Heat
 
When I started out I was interested in mean reversion. I gathered that simply meant identification of securities with high correlation, recognition of divergences and having the apparatus necessary to realize long and short positions on the respective securities adequately fast to exploit them.

But when I got to a hedge fund I quickly found that the magic was in the knowledge of the correlating securities. There were people there who took that very far down the rabbit hole. Experienced quants found correlations between things that were seemingly unrelated. Things with persistent correlation but requiring all kinds of normalization to see it. Stuff I would have never thought to look for in a million years. Not trying to discourage but there are many smart people in that game.
 
Quote from 377OHMS:

When I started out I was interested in mean reversion. I gathered that simply meant identification of securities with high correlation, recognition of divergences and having the apparatus necessary to realize long and short positions on the respective securities adequately fast to exploit them.

But when I got to a hedge fund I quickly found that the magic was in the knowledge of the correlating securities. There were people there who took that very far down the rabbit hole. Experienced quants found correlations between things that were seemingly unrelated. Things with persistent correlation but requiring all kinds of normalization to see it. Stuff I would have never thought to look for in a million years. Not trying to discourage but there are many smart people in that game.
More...

Even Shakespeare started with his "ABCs" :)

No Heat
 
Mean reversion strategies only work in very high volatile markets. In the current climate it would be easier for you to just light a match to your money. Trend follow or nothing at the moment. When volatility increases try mean reversion.
 
Quote from the1:

Mean reversion strategies only work in very high volatile markets. In the current climate it would be easier for you to just light a match to your money. Trend follow or nothing at the moment. When volatility increases try mean reversion.
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That would depend on how he implements it.

He never implied whether he was thinking of pair trading, buying/selling baskets against etf's, or simply trading stocks which are overbought or oversold. Or even if he was trading futures or forex or stocks.

Such a general statement about volatility gives a grave representation about MR trading.

Lets just give the guy some guidance, and let him discover the pitfalls and benefits on his own, shall we?
 
I have a mean-reversion strategy that works. but it baffles me why I should share anything with you.

Perhaps if you're willing to give me a lot of money I may consider discussing it with you.

my only advice is theoretically coming up with a strategy (mean-reversion, momentum etc.) is easy, while implementing it in reality is very difficult if not impossible. There are people who have strategies that do work on paper but need a hedge-fund platform & technology and large capital to make it work.


regards,

Batman
 
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