Reversion To the Mean (RTM) Intraday Strategies

Quote from MAESTRO:

:D

I wasn't trying to be "mean" :)

Mean or expected value used in the distribution formulas could be calculated using all sorts of interpolators. Moving average has a very bad reputation of being "late" and not representing the "mean" as such that the distribution of the price over it would be stable. There are higher degree polynoms that accomplish this task much better.
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Higher degree polynoms ? Stuff like this :


f(x) = a0xn + a1xn-1 + a2xn-2 + ... + an

or more like this :

779px-Lines_Apophysis_Fractal_Flame.jpg
 
Quote from black diamond:

Does anybody here use VWAP over some period as the mean?
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i've played around with that, but there are too many days when it doesnt revert at all. and because vwap is reset every day, if it doesnt revert by the end of the day, you've lost you chance.

oh, on that note, you cannot have "vwap over some period." there is only one vwap; its period cannot be changed by definition of vwap. the only thing you can really change is the time at which it starts over (usually midnight, or market open). the vwap factors in every price and volume from its starting time up to the current time, thats why it doesnt have a period you can change.

in my experience MAs work better because unless you're using some super slow MA, price will always eventually revert.

i'd post pics comparing the two but my internet is down today so im posting from my phone.

so until maestro tells us about higher degree polynoms, i will say that a properly calibrated MA is the best thig you can use. unfortunately, you never know ahead of time which period of MA will work best. Play around I guess.
 
I think he's referring to some math that got developed fairly recently wherein somehow, and don't ask me how, they can somewhat predict the next data point in a series of data.. I looked into it once, part of it went over my head and the rest of it went way over my head... can't recall what it was called though but mathematically speaking... and I'm no mathematician, but nonetheless, it is predicting the future and we tend to think that's technically impossible but of course there are always really smart guys and gals tucked away inside some university somewhere doing the impossible... One guy can get a Nobel Prize for proving that it's impossible and another can get a Nobel Prize for doing it... maybe some really hip person can tell us what that branch of math is... I could find it if I had to, it was posted on ET years ago, but I'm not going to that trouble today...
 
I'll take a guess that MAESTRO is referring to exponential and weighted moving averages. MA's are used to eliminate 'noise' in a time series and these act as low-pass filters in EE parlance.

EDIT:

Upon further thought I should include tests for Cointegration.
 
Quote from Tums:

Let's go back to that chart I posted.

first, cover up the indicator on bottom... and look at the chart.

What do you see?

What is the market telling us?


<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=2232658>


The market beams out its signal to us every tick.
If we can interpret its signal, we will understand its intention. (i.e. next move)
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humm. I know it. Wait until its mouth opened the widest it can. Then take a byte, like allegators.

PS: you still have some other problems. (for instance, which MA to use). Tired to write for reasons in post below.
 
Quote from knocks420:

I'll take a guess that MAESTRO is referring to exponential and weighted moving averages. MA's are used to eliminate 'noise' in a time series and these act as low-pass filters in EE parlance.

EDIT:

Upon further thought I should include tests for Cointegration.
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1. No. high pass.

2. You can use them for low pass. Just subtract from price ... (tired to type. It is in my blog).
 
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