Reversion To the Mean (RTM) Intraday Strategies

Quote from IronFist:

How does one know ahead of time if price will go against them when they enter?

In other words, when price gets x distance from your mean, how do you know at that moment if it's a good time to enter or not?

And similarly, how do you know when it comes time to place the trade if the market is reverting or not?
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Nobody knows that. All I can say is that when catching knives its best to wait until they *appear* to have hit some sort of hard ground (vice versa for shorts).

When price gets "x" away from my "mean", I don't enter. I enter when the price is coming back towards "x" after being below "x". I don't use a mean in any traditional sense.

The market is reverting after it became comfortable after a recent drop/rise. Like I said earlier, I know from statistics beforehand where an entry point needs to be placed *after* I've determined that we've seen a possible bottom.
 
Quote from Mike805:

That's a good question and I don't have a definitive answer. What I try to quantify is the stabilization of price and what a subsequent reversal/reversion setup trades like. So far, price simply moving a certain distance away from the low is good enough for me. I use a homegrown volatility filter as well.

Volume has been an inconsistent indicator for me thus far, although, it seems that a spike in volume will sometimes accompany a reversal point. I don't have the evidence to support this however as a reversal will occur on quiet volume as well. Note I apply my analysis to all products, not any one specific market.

Mike
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I also have tough time using volume. I see some relevance to volume on the price axes. I mean price areas where there was cumulative high volume and price areas with cumulative low volume. But as far as PA goes volume is not consistent. R/S support lines can be broken on low volume and on high volume. What is more important is what happens to the cumulative volume after that.

I like to see steps. Up accept, Up accept. If I see UP, down accept. Then the UP trend might be over.
 
Quote from IronFist:

so, what are you using for your mean? :D
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Ok. You probably won't believe me, but, after years of trying just about everything one could possibly think of: yesterday's close.

Pretty simple, huh?

Mike

P.S. I'd be happy to challenge the mathematically capable here... it's been a while but I did get through some pretty serious academic bullshit :D
 
Quote from lolatency:



Working in a derivatives group, I am absolutely in awe of how many years people went to school and the extremely complex mathematical models and modeling techniques they use. They consistently make money, year after year, while I see the retail trader bumbling around with patterns and shapes that have not been proven in any statistically satisfactory manner.

Consider the simple moving average. You know that an MA(q) model assigns different weights to the the information in the past before calculating the average. There's also an infinite summation AR(p) form that's equivalent to the MA(q) form. Now, go over to a technical analysis package where the variable to be adjusted is simply the size of the window over which information is averaged in an unweighted fashion. TA approach for exponential moving averages also just assigns more urgency to recent points (better), but says nothing about any weight-adjustment schemes to account for independence between estimations of the means on a regression.

... Bah. end rant.
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Your saying an ARMA model is better then a WMA or an EWMA (typical functions in TA software)?

But my question is, how can this be the case if the probability distribution or (regime) changes on you?

I have back-tested stupid simple WMA strats that perform great on 'select' equities and not so well on others. Why, because its likely these stocks will have a stable distribution unless some fundamental shock or equity curve tells me otherwise. Is that biased test, you bet, but how can an ARMA model perform any better?
 
Quote from Mike805:

Ok. You probably won't believe me, but, after years of trying just about everything one could possibly think of: yesterday's close.

Pretty simple, huh?

Mike

P.S. I'd be happy to challenge the mathematically capable here... it's been a while but I did get through some pretty serious academic bullshit :D
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Actually, you are correct. One of the best mean levels is the yesterday's close. However, there are better ones.
 
Quote from MAESTRO:

Actually, you are correct. One of the best mean levels is the yesterday's close. However, there are better ones.
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What about Yesterday's Point of Control (The thickest part of a TPO or Volume at Price profile), The idea is that is where most of the volume was, hence the true value is there.
 
Quote from MAESTRO:

Warmer!
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To be true to the MP teachings. To use POC the day must be balanced. Or use more then one day to achieve the balance.

Balance is a bell curve like looking shape where the close was within the tick part .

Now if the price moves "to much" from the balanced POC we can start thinking of going against it if...... Or go with it if.....
 
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