why people bad mouth mean reversion strategies?

Quote from NoDoji:


Be careful not to get distracted or frustrated if stopped out a couple times. You have to stay very focused and work each bar. I had one of these going not long ago, two small stop outs, then took a little break instead of taking the 3rd stall and missed a HUGE reversion move :mad:
More...

Taking a break is better than "death by 1000 cuts" though :). I wouldn't be disappointed. Better to come back with a fresh mind.

Quote from Cabletrader:"trackstar, tough day and it happens to us all, but I guess you already know that. When I have a bad day/week/month I look at it as just a short-term loan to the market, the money's coming back to me soon.....with interest "
More...


:)
 
Quote from failed_trad3r:

Mean-reversion means buying this "pullback" as we are in a bull market... good decision, or??:( :confused: :eek:
More...

attachment.php
 

Attachments

There is nothing wrong with either strategy. In low-volatility environments use trend following. In high-volatility use mean reversion. I learned the weaknesses of each strategy the hard way. Right now you have to use a combination of both because even though volatility is high on the daily charts it tends to be low for periods of time intra-day.

Right now I'm using a combo of trend following long and mean reversion/scaling short but stand ready to flip that coin when needed. Success depends on your ability to adapt to changing market conditions.

Quote from traderzhangSan:

Most people say trend following works better because you could potentially catch big trend even winning odds might be lower than 50%.

However it is not that easy to catch the trend even your bet is right. quite simply, along the trend you could be stopped out if you use trailing stop.


On the other hand, mean reversion trade has higher winning probability and you could catch the trend as well(reversed trend).

I don't think the above two styles are necessarily mutual exclusive. They could be very much compatible.
More...
 
Very Nice. I have tried similar strategy trading ES.I do find it is very high probability trading strategy. the downside is you have to look at screen all the time, not for lazy person.


When my limit order is executed, my pre-defined stop loss and profit taking target is placed automatically.This gives you some protection.



Quote from NoDoji:

I think of mean reversion as a counter-trend strategy. With-trend trading involves either trading breakouts in the direction of the trend, or buying/selling pullbacks in the trend for the next move up/down.

When a trend is making a 3rd push, trend followers are going to look for an exhaustion point to take off some or all of the trade. Counter-trend traders are licking their chops because retraces off a 3rd push can be strong and often set up a trend reversal.

I use a 5-min chart. When I see a 3rd push in progress, I watch for a second price bar to extend and the moment price on my DOM pauses and pulls back a few ticks, I may jump into a counter-trend position with my stop at the new high/low.

This way my risk is very small, and if stopped out, I watch for price to stall again and try again.

Others playing this strategy start scaling into a full-size position during the strong move (hopefully waiting for at least a second strong bar starting with the breakout bar). If you do it this way and have well-planned entry intervals, a max position size, and a firm price level at which you will bail, it can work just as well, but the potential loss is higher.

I'm a day trader using 5-min charts, but this strategy works in all time frames.

I used this strategy today on my last trade in crude oil just before the NYMEX close.

At 2:10pm, price was in the process of a 3rd push up from the 12:45pm ET pivot low. The 2:15pm bar was the breakout bar and the 2:20pm bar was green and broke through the 2:15pm bar's high. The breakout tested a next level and stalled. Price pulled back and I shorted the exhaustion pullback.

Because I was trading with the new momentum (instead of having faded the breakout as it ran against me), the trade was almost immediately 11 ticks profitable before I even had time to place my stop, so I placed my stop at break even and took profits on the way down to the 20-bar moving average (a standard initial target for counter-trend trades).
More...
 
Your time frames are too far apart. Mean reversion strategies work best when you compare close time frames such as the 5's and 1's, for example. In your case you are comparing the 5's and dailies, which leaves too much unexamined data. If you do something like the 5's and 15's or 60's and dailies you'll get better results.

Mean reversion does work but you need other tools to support it. In the current market I am using a mean reversion/scaling strategy but only on the short side at the moment. It wasn't long ago that I was doing MR only on the long side. Back in 2008 I was using it in both directions and not doing any trend trading at all. Conditions are constantly changing. Adapt, adapt, adapt.

Quote from ehorn:

attachment.php
More...
 
Quote from NoDoji:

I think of mean reversion as a counter-trend strategy. With-trend trading involves either trading breakouts in the direction of the trend, or buying/selling pullbacks in the trend for the next move up/down.

When a trend is making a 3rd push, trend followers are going to look for an exhaustion point to take off some or all of the trade. Counter-trend traders are licking their chops because retraces off a 3rd push can be strong and often set up a trend reversal.

I use a 5-min chart. When I see a 3rd push in progress, I watch for a second price bar to extend and the moment price on my DOM pauses and pulls back a few ticks, I may jump into a counter-trend position with my stop at the new high/low.

This way my risk is very small, and if stopped out, I watch for price to stall again and try again.

Others playing this strategy start scaling into a full-size position during the strong move (hopefully waiting for at least a second strong bar starting with the breakout bar). If you do it this way and have well-planned entry intervals, a max position size, and a firm price level at which you will bail, it can work just as well, but the potential loss is higher.

I'm a day trader using 5-min charts, but this strategy works in all time frames.

I used this strategy today on my last trade in crude oil just before the NYMEX close.

At 2:10pm, price was in the process of a 3rd push up from the 12:45pm ET pivot low. The 2:15pm bar was the breakout bar and the 2:20pm bar was green and broke through the 2:15pm bar's high. The breakout tested a next level and stalled. Price pulled back and I shorted the exhaustion pullback.

Because I was trading with the new momentum (instead of having faded the breakout as it ran against me), the trade was almost immediately 11 ticks profitable before I even had time to place my stop, so I placed my stop at break even and took profits on the way down to the 20-bar moving average (a standard initial target for counter-trend trades).
More...

You trade sexy.
 
Hey guys,

This may be common sense, but I am under the impression that mean reversion beats trends in some environments and vice versa and in fact when one strategy works, the other fails. Good example, I had a friend who was making money trading forex, with mean reversion, but after the US markets closed. I bet if you used a breakout or trend system then, you would lose. Likewise, he lost money whenever he used the system during the us trading hours. I think most traders have a tendency to make money at certain times during the day. Well, actually, their system does. Well then, wouldn't the "opposite" type of system work when their system doesn't???

-steps
 
This thread has become too varied and not really about mean reversion trading per se, people are talking about pairs trading and arbitrage. Which is not the same thing as mean reversion trading.
 
You must log in or register to reply here.
Back
Top