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A Simple Mean Reversion Strategy

Quoting tarzon06
{quote} what is the fair value candle ??
It's drawing the candles where the open price is first close above/below MA to start an opportunity to capture a premium or discount. The high/low is the same (MAE/MFE for the move) and the close is the MA value of price returning to "fair value".
ri · skuht
Quoting Riskcuit
{quote} Il s'agit de dessiner les bougies où le prix d'ouverture est pour la première fois clôturé au-dessus/en dessous de MA pour créer une opportunité de capturer une prime ou une remise. Le haut/bas est le même (MAE/MFE pour le mouvement) et la clôture est la valeur MA du prix revenant à la « juste valeur ».
Thank you, Is it possible to code an indicator for fair value candles?
Quoting tarzon06
{quote} Thank you, Is it possible to code an indicator for fair value candles?
I think yoriz is going to code one, so if he wants to post it that will likely help.

Anyone with decent coding experience should be able to easily do it in MT4 or PineScript (Trading View).

I do all my coding/modeling in Python so my scripts will not really be of much use for folks here.

Also, just adding the MA to the chart, you can see the "candles" as they are drawn by pricing moving around the MA. The images above are essentially just that movement compressed.
ri · skuht
Quoting Riskcuit
{quote} Je pense que yoriz va en coder un, donc s'il veut le publier, cela l'aidera probablement. Toute personne ayant une expérience décente en codage devrait pouvoir le faire facilement dans MT4 ou PineScript (Trading View). Je fais tout mon codage/modélisation en Python donc mes scripts ne seront pas vraiment d'une grande utilité pour les gens d'ici. De plus, en ajoutant simplement la MA au graphique, vous pouvez voir les « bougies » telles qu'elles sont dessinées par les prix se déplaçant autour de la MA. Les images ci-dessus ne sont essentiellement...
thanks
Quoting Riskcuit
{quote} It's drawing the candles where the open price is first close above/below MA to start an opportunity to capture a premium or discount. The high/low is the same (MAE/MFE for the move) and the close is the MA value of price returning to "fair value".
Can you share the algorithm so we can reproduce it?
No greed. No fear. Just maths.
Here is an implementation of the Fair Value Candles indicator for MT5*:
Attached Image (click to enlarge)
Click to Enlarge Name: screenshot.png Size: 6 KB

Attached File(s)
File Type: ex5 yzFairValueCandles-1.0.ex5   14 KB | 230 downloads

Here is an example screenshot:
Attached Image (click to enlarge)
Click to Enlarge Name: screenshot.png Size: 6 KB

*) No, I am not going to port the indicator to MT4. It is 2023. About time you upgrade to MT5... ;-)
Quoting PipMeUp
{quote} Can you share the algorithm so we can reproduce it?
Sure, here is how I calculated each OHLC for the charts I posted.

- OPEN = (Close > MA && Low <= MA) || (Close < MA && LOW >= MA) - One or the other
- CLOSE = (High > MA || Low < MA) - Depending on what triggered the open. We aren't looking for close above/below fair value, just a touch.
- HIGH = MFE from open. Since we are drawing the candles the MFE would be MAE when traded.
- LOW = MAE from open. Since we are drawing the candles the MAE would be MFE when traded.


IMPORTANT: The opening trigger does not determine if the candle will be green or red. It's important to understand that openings above the MA can produce both red/green candles. The same goes for opens below the MA.

Additionally, the open use High/Low to determine "cross" vs. open because whenever fair value is returned, the next leg starts regardless if the candle has opened above/below the MA. Many candles return to fair value in their wicks, so if you don't use high/low you aren't compressing all of the normal OHLC candles.
ri · skuht
Quoting yoriz
Here is a first draft version of the Fair Value Candles indicator for MT5*. Version 0.9, because there is still something fishy with the rightmost candle, but I decided to already post because some people were becoming impatient ;-) {image} {file} Example chart: {image} *) No, I am not going to port the indicator to MT4. It is 2023. About time you upgrade to MT5... ;-)
A man of the people! Thanks for sharing!

When you draw price like this, hopefully, it becomes very obvious that fading wicks seem like a pretty good idea
ri · skuht
Quoting Riskcuit
Sure, here is how I calculated each OHLC for the charts I posted. [...] Many candles return to fair value in their wicks, so if you don't use high/low you aren't compressing all of the normal OHLC candles.
Ah, thanks for the details! I had to guess a bit, so I will double check my implementation against this later today and fix the rightmost current candle...
Din-dins first....
Quoting yoriz
I will double check my implementation against this later today and fix the rightmost current candle
I double checked the algorithm and fixed the right-most candle. I have updated Post #186 with the latest version.
Sell check marks, Buy crosses - mortgage the house(just making a joke, come on its is Friday )
Attached Image (click to enlarge)
Click to Enlarge Name: screenshot.png Size: 15 KB
Quoting Riskcuit
When you draw price like this, hopefully, it becomes very obvious that fading wicks seem like a pretty good idea
Indeed, each wick that returns to the "plateau" is money earned. But how about the sometimes huge shifts between plateau heights? That is where theta catched up with us, costing us money, right?
Quoting yoriz
{quote} Indeed, each wick that returns to the "plateau" is money earned. But how about the sometimes huge shifts between plateau heights? That is where theta catched up with us, costing us money, right?
yes that is exactly correct. The large bodies in those big candles are those huge moves where theta eats up a ton of pips.

As I said earlier, this isn’t some insanely high win rate strategy so there will be losses. It’s all about managing the trade and capturing as much wick as possible, averaging down to try and move your average entry as close to the peak of the wick as possible.
ri · skuht
Quoting driven18
Sell check marks, Buy crosses - mortgage the house(just making a joke, come on its is Friday ) {image}
you really want to mortgage your place don’t you?
ri · skuht
Quoting Riskcuit
{quote} you really want to mortgage your place don’t you?
Have a good weekend.
Hi yoriz,

Firstly thank you for your valuable contribution to this interesting topic thus far. Unfortunately I am unable to keep up to date with this interesting project now because I do not have an option to upgrade from MT4 to MT5 currently. I am running a 2010 Applemac and I cannot upgrade to the operating software required to run MT5 without purchasing a newer Mac which due to financial constraints is not possible at the current time.

I know you have said... No, I am not going to port the indicator to MT4, It is 2023 about time you upgrade to MT5? I agree with you wholeheartedly and would if I could but unfortunately I am unable to do so at the moment. Would you kindly consider if it is not too much trouble for you to upload a version of the 'Fair Value Candles indicator' for MT4 as well please?

Thank you for your consideration.

Kevin.
Quoting wingate
I am running a 2010 Applemac and I cannot upgrade to the operating software required to run MT5 without purchasing a newer Mac
Are you sure? I am a Mac user myself and MT5 is running just fine in both VirtualBox (on very old 2013 Intel Mac) and using CrossOver (on the newest M2 MacMini).
Hi yoriz,

Thanks for getting back to me. I have a 2010 Mac Mini running OS 'El Capitan' via 'wine'. The earliest version of applicable OS software for running MT5 is 'High Sierra' according to my google search. I am not sure what 'VirtualBox is?

Thanks.
Hi yoriz,

Having just googled VirtualBox it appears that this might be the answer to my problem? If I downloaded and installed this programme onto my Mac it appears that I could then run 'High Sierra' independently on my machine, is this correct?

Thanks.

Kevin.
Thank you for sharing.
But it didn't make much sense to me. Because prices do not follow the average, averages follow prices.
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