Shoutout to Riskcuit for highlighting the ideologies around using the 200 EMA as a metric for fair value. The "Simple Mean Reversion Strategy" thread gave birth to this concept that I've been tinkering with today that's surprisingly showing some good results.
ALL FEEDBACK WELCOMED - ADJUST, TINKER, CHANGE!
I will quote Risckuit a bit here to save time..
We know prices will always return to their “fair value”, so this is where we want to GET OUT of the market. When price is above/below it’s “fair value”, is where we want to GET IN the market. So the entry and exit rules are simple:
If price is above “fair value”, we can sell the asset. We exit our shorts once the market returns to “fair value”.
If price is below “fair value”, we can buy the asset. We exit our longs once the market returns to “fair value”.
In addition to these concept, I will add my personal touch of reasoning. How do we take this one step further and truly isolate markets that are well outside of their current fair value? We will compare many other pairs at any given time, find which pair is deviating from the market mean, deviating from it's fair value, and objectively pushing into overbought or oversold conditions. Once we determine this we can take a position back towards the fair value and exit our position.
TLDR: All pairs are moving one way, one pair deviates from the rest. Trade that pair back to it's Fair Value.
You're going to need:
200 EMA
Free TradingView account for this one indicator: Spaghetti by RainbowLabs (if you can code this for MT4/5 please do so and share)
These are the pairs I've been using:
For scalping use default H1 timeframe on indicator. For longer positions change indicator to H4 or Daily and use M15, M30 or H1 on chart.
For Entry:
Find Deviating Pair by looking for the line on the spaghetti indicator that's far extended from the other lines. There should really only be one. This helps confirm that this current pair is far outside the markets mean and should inevitably return to it's fair value.
Once the deviating pair is very far from market mean, we time our entry with RSI (Length 14, 70/30). Wait for RSI to confirm that the price is Oversold or Overbought. You can use other confluences and confirmations here as well. (Trendline breaks, Linear Regression, MACD)
Open a position targeting the 200 EMA and set your stop loss appropriately.
Notes:
Works on any time frame, just adjust your position sizes accordingly
Your target is dynamic, sometimes the pips reduce as the 200 EMA moves towards us
Money Management is key, and will be updating this as we move forward
ALL FEEDBACK WELCOMED - ADJUST, TINKER, CHANGE!
I will quote Risckuit a bit here to save time..
We know prices will always return to their “fair value”, so this is where we want to GET OUT of the market. When price is above/below it’s “fair value”, is where we want to GET IN the market. So the entry and exit rules are simple:
If price is above “fair value”, we can sell the asset. We exit our shorts once the market returns to “fair value”.
If price is below “fair value”, we can buy the asset. We exit our longs once the market returns to “fair value”.
In addition to these concept, I will add my personal touch of reasoning. How do we take this one step further and truly isolate markets that are well outside of their current fair value? We will compare many other pairs at any given time, find which pair is deviating from the market mean, deviating from it's fair value, and objectively pushing into overbought or oversold conditions. Once we determine this we can take a position back towards the fair value and exit our position.
TLDR: All pairs are moving one way, one pair deviates from the rest. Trade that pair back to it's Fair Value.
You're going to need:
200 EMA
Free TradingView account for this one indicator: Spaghetti by RainbowLabs (if you can code this for MT4/5 please do so and share)
These are the pairs I've been using:
For scalping use default H1 timeframe on indicator. For longer positions change indicator to H4 or Daily and use M15, M30 or H1 on chart.
For Entry:
Find Deviating Pair by looking for the line on the spaghetti indicator that's far extended from the other lines. There should really only be one. This helps confirm that this current pair is far outside the markets mean and should inevitably return to it's fair value.
Once the deviating pair is very far from market mean, we time our entry with RSI (Length 14, 70/30). Wait for RSI to confirm that the price is Oversold or Overbought. You can use other confluences and confirmations here as well. (Trendline breaks, Linear Regression, MACD)
Open a position targeting the 200 EMA and set your stop loss appropriately.
Notes:
Works on any time frame, just adjust your position sizes accordingly
Your target is dynamic, sometimes the pips reduce as the 200 EMA moves towards us
Money Management is key, and will be updating this as we move forward
Can't go broke making profit