Questions about mean reversion strategies

[TraDaToR]

Hello,

When people are talking about reversion to mean, I generally imagine some kind of channels around a moving average/mean where you buy on lower channel and sell short on upper one.

But do people actually exit on the mean? I generally have better results when I let the price go from lower band to upper band / from negative diversion to positive instead of exiting on the average... Thoughts?

Do people really use the mean stricto sensu instead of an average?

Thanks a lot.

 

[dbphoenix]

Hello,

When people are talking about reversion to mean, I generally imagine some kind of channels around a moving average/mean where you buy on lower channel and sell short on upper one.

But do people actually exit on the mean? I generally have better results when I let the price go from lower band to upper band / from negative diversion to positive instead of exiting on the average... Thoughts?

Do people really use the mean stricto sensu instead of an average?

Thanks a lot.

The "mean" is where the bulk of the trades are taking or have taken place. The limits of what often becomes a channel represent how far away from the mean traders are willing to go to look for trades before returning to the mean. The mean, therefore, is in control, not the "channel".

If you're entering at one extreme or the other, there's no particular reason to exit at the mean, though you may have to wait while traders sort things out before they continue -- if in fact they do so -- to the other extreme.

 

[TexasTeaTrader]

Hello,

When people are talking about reversion to mean, I generally imagine some kind of channels around a moving average/mean where you buy on lower channel and sell short on upper one.

But do people actually exit on the mean? I generally have better results when I let the price go from lower band to upper band / from negative diversion to positive instead of exiting on the average... Thoughts?

Do people really use the mean stricto sensu instead of an average?

Thanks a lot.

Are you looking for something like this? Middle line is a linear reg, the bands are ATR. You sell the upper band and cover at the middle. Buy the lower band and cover at the middle.

 

[murray t turtle]

Hello,

But do people actually exit on the mean? I generally have better results when I let the price go from lower band to upper band / from negative diversion to positive instead of exiting on the average... Thoughts?

Do people really use the mean stricto sensu instead of an average?

Thanks a lot.

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Trada88;
Good question.To keep it simple, there are some more choices,, but when you have a profitable trend, yes i prefer to let it run past average, It usually does,,,,,,,, unless its real , real late in the trend........................................................................................................................................Not a prediction; wisdom is profitable to direct.Some use mean, median /middle and average.