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A Simple Mean Reversion Strategy

  • #81
  • Aug 17, 2023 5:39am Aug 17, 2023 5:39am
The indicator below plots the distance between the MA-200 of EURUSD and the MA-200 of GBPUSD.
I've added Bollinger Bands to it to observe when the distance is "high"... here are some entry points.
Attached Image (click to enlarge)
Click to Enlarge Name: eurgbp.PNG Size: 53 KB
  • #82
  • Aug 17, 2023 6:04am Aug 17, 2023 6:04am
Good thread RC.if there are statisticians.......for example, what is the probability on AU after a spread of 100 pips to retrace 20 pips? look for interesting proba then trade if proba is for us
  • #83
  • Aug 17, 2023 9:12am Aug 17, 2023 9:12am
Quoting pbylina
Wouldn’t it make more sense to short when the average price is getting smaller or in other words when the 200 MAs slope is negative? So you could have shorted that spike for example. {image}
You could use this signal but there will be very few entries overall. Also, the goal isn't to have "sniper" entries for scalps. It's to manage risk and be paid for it over time through a large number of occurrences.
ri · skuht
  • #84
  • Aug 17, 2023 9:15am Aug 17, 2023 9:15am
EUR/GBP setting up nicely to start building a long position.
ri · skuht
  • #85
  • Aug 17, 2023 9:22am Aug 17, 2023 9:22am
Quoting PipMeUp
{quote} Hi, I made a bit of stats on A/U H1. Nothing very surprising. - The max gap is approx. 1200 pips (8 oct 2008). - Theta is correlated to the spread. This makes sense because of the lag of a moving average (distance to the MA is the trend times the lag). - The curvature of the ema200 is also proportional to the spread. Also makes sense since an EMA corrects proportionally to the distance. From this you easily conclude that the safer the less premium and vice-versa. A tradeoff would be to take a trade when the spread is wide but the slope is...
Thanks for dropping in PipMeUp! Have enjoyed a lot of your work around the forum in the past.

That is correct, the "safer", defined as a higher probability win rate, the less meat on the bone there is to capture. This is built into anything that has a distribution that is remotely similar to a normal one. The larger the spread, the lower the win rate, and the larger the reward.
ri · skuht
  • #86
  • Edited 10:36am Aug 17, 2023 10:16am | Edited 10:36am
Let me get this straight. The strategy rules are:

1. Price needs to be away from the 200ma by a x number of pips (adequate "spread")
2. RSI or Oscillator of choice needs to be overbought for SELL and oversold for BUY
3. Only average down when another signal is generated AND 200ma passes through previous entry
4. Exit at return to 200MA or other money management techniques.

This can be somewhat easily coded and tested.
Leave the Gun, Take the Armani
  • #87
  • Aug 17, 2023 10:38am Aug 17, 2023 10:38am
@Riskcuit ,what is VAR? value-at-risk? what is its importance ? how do we calculate?
  • #88
  • Aug 17, 2023 10:46am Aug 17, 2023 10:46am
Quoting Arti23
@Riskcuit ,what is VAR? value-at-risk? what is its importance ? how do we calculate?
VAR is the max you can lose at any given time. You use a MAX value instead of an average/median and assume it's going to happen. It's important to keep your sizing small and adjust it as you add to your position.
ri · skuht
  • #89
  • Aug 17, 2023 10:50am Aug 17, 2023 10:50am
cliffjaded.."Leave the Gun, Take the Armani"

Inserted Video
  • #90
  • Aug 17, 2023 11:09am Aug 17, 2023 11:09am
Quoting driven18
cliffjaded.."Leave the Gun, Take the Armani" https://www.youtube.com/watch?v=yHzh0PvMWTI
A fellow man of culture
Leave the Gun, Take the Armani
  • #91
  • Aug 17, 2023 12:04pm Aug 17, 2023 12:04pm
Quoting cliffjaded
Let me get this straight. The strategy rules are: 1. Price needs to be away from the 200ma by a x number of pips (adequate "spread") 2. RSI or Oscillator of choice needs to be overbought for SELL and oversold for BUY 3. Only average down when another signal is generated AND 200ma passes through previous entry 4. Exit at return to 200MA or other money management techniques. This can be somewhat easily coded and tested.
I can write the code for this strategy if you like in mql4. But now I am in vacation so I will be able to write it in a few days. Also we must discuss about the stop loss levels in case the trade/s go against us.
  • #92
  • Aug 17, 2023 12:58pm Aug 17, 2023 12:58pm
Quoting DrVirus
{quote} I can write the code for this strategy if you like in mql4. But now I am in vacation so I will be able to write it in a few days. Also we must discuss about the stop loss levels in case the trade/s go against us.
No SL as you are averiging down
  • #93
  • Edited 1:37pm Aug 17, 2023 1:21pm | Edited 1:37pm
Quoting Riskcuit
EUR/GBP setting up nicely to start building a long position.
As soon as we see at least 50 pips spread/deviation from MA, I started and continue building long positions.
Attached Image (click to enlarge)
Click to Enlarge Name: screenshot.png Size: 22 KB
  • #94
  • Edited 2:43pm Aug 17, 2023 2:31pm | Edited 2:43pm
If I have several entries losing, I would look for a higher TF liquidity point to add.

The RSI since the downtrend began is indicating oversold with possible entries...
  • #95
  • Aug 17, 2023 2:54pm Aug 17, 2023 2:54pm
Like, how do you guys get several entries losing? If you follow the "only re-enter when fair value hits your first entry", you get just a few entries. I been backtesting this strategy with my stuff and the max open trades I had was 3, on the 1 minute chart, having, on average, a profit factor of over 2 each month. It's mad crazy, if you follow the rules. If you start averaging down every time the rsi goes OB or OS, you're done. And yes, I use RSI for my testings.
  • #96
  • Aug 17, 2023 3:11pm Aug 17, 2023 3:11pm
It was an idea as a possibility, I have not tested the system yet, but I think that being able to get out with profits is as it says, letting MA reach the first entry before averaging
  • #97
  • Aug 17, 2023 3:13pm Aug 17, 2023 3:13pm
And don't trade after red news (if you trading the 1Min). Almost everytime sets up a huge trend that causes drawdown.
  • #98
  • Aug 17, 2023 3:37pm Aug 17, 2023 3:37pm
Quoting Baiao1906
And don't trade after red news (if you trading the 1Min). Almost everytime sets up a huge trend that causes drawdown.
Did you use any filter for the first entry, such as a certain separation, price action, etc, in addition to the RSI? And once he had two inputs, would he let the 2nd MA reach his level to average a 3rd?
  • #99
  • Aug 17, 2023 3:46pm Aug 17, 2023 3:46pm
Quoting gerval
{quote} Did you use any filter for the first entry, such as a certain separation, price action, etc, in addition to the RSI? And once he had two inputs, would he let the 2nd MA reach his level to average a 3rd?
ATR bands on the MA and only buy when below them (vice-versa for sells). Only trade during certain hours and not the all day. Once i enter, I either wait for the price to return to the FV or the FV coming to my entry. If the FV, comes to my entry and the price in below (buys) the ATR bands, i enter again, adding, let's say, 0.01 lots to my size. Then I wait, and I keep doing this until it gets out on the 200 ema. Some setups will be a loss, but mostly are wins. So far, on average, 70% win rate, with close to 1:1 average win/loss, which is great.
  • #100
  • Aug 17, 2023 3:49pm Aug 17, 2023 3:49pm
The core of this strategy is really good, specially the re-entry rule, which saves you a s**** ton of drawdown.
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