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A Simple Mean Reversion Strategy

  • #301
  • Sep 12, 2023 8:08am Sep 12, 2023 8:08am
Do you undesrstand why Price returns to its mean ?
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  • #302
  • Sep 12, 2023 8:09am Sep 12, 2023 8:09am
Quoting parisboy
AUDUSD Daily{image}
Hey parisboy,

Do you mind clarifying what you are trying to show in these?

I assume the bands are where you are looking to enter to trade back to fair value, but am curious how you are calculating their widths?
ri · skuht
  • #303
  • Edited 2:35pm Sep 12, 2023 8:31am | Edited 2:35pm
Quoting Riskcuit
{quote} Hey parisboy, Do you mind clarifying what you are trying to show in these? I assume the bands are where you are looking to enter to trade back to fair value, but am curious how you are calculating their widths?
Width of the "Band" = 1/4 of your screen Price Range

Roughly Price can be represented as a Sinewave oscillating around the Trend

The Centered Moving Average = The Trend

256 Days = 1 Year in Daily

The sinewave explains the 50% retracement
  • #304
  • Sep 12, 2023 8:48am Sep 12, 2023 8:48am
sinewaves
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  • #305
  • Sep 12, 2023 8:51am Sep 12, 2023 8:51am
Quoting parisboy
Do you undesrstand why Price returns to its mean ? {image}
Because you're using a non-causal smoother (=uses data from the future) as opposed to a filter. The dotted lines project the bands forward and will correct with every new bar. With a usual MA the price doesn't return to the MA. It is the MA that catches up the price when it slows down.
No greed. No fear. Just maths.
  • #306
  • Sep 12, 2023 8:58am Sep 12, 2023 8:58am
Quoting PipMeUp
{quote} Because you're using a non-causal smoother (=uses data from the future) as opposed to a filter. The dotted lines project the bands forward and will correct with every new bar. With a usual MA the price doesn't return to the MA. It is the MA that catches up the price when it slows down.
No use of data from the Future
  • #307
  • Sep 12, 2023 9:03am Sep 12, 2023 9:03am
Quoting parisboy
{quote} No use of data from the Future
The centered moving average is a MA shifted backward in time. At a given bar the value of the MA is the value the MA will have in <lag-of-the-MA> bars.
The current bars are a linear projection which will repaint.
No greed. No fear. Just maths.
  • #308
  • Sep 12, 2023 9:12am Sep 12, 2023 9:12am
Quoting PipMeUp
{quote} The centered moving average is a MA shifted backward in time. At a given bar the value of the MA is the value the MA will have in <lag-of-the-MA> bars. The current bars are a linear projection which will repaint.
no the last Centered Moving Average point calculated is calculated with real price (see solid Envelopes and Centerlines) the dotted line is just an extrapolation
  • #309
  • Sep 12, 2023 9:15am Sep 12, 2023 9:15am
Quoting parisboy
{quote} no the last Centered Moving Average point calculated is calculated with real price (see solid Envelopes and Centerlines) the dotted line is just an extrapolation
What is the formula ?
No greed. No fear. Just maths.
  • #310
  • Edited 9:39am Sep 12, 2023 9:15am | Edited 9:39am
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  • #311
  • Edited 9:40am Sep 12, 2023 9:27am | Edited 9:40am
Quoting PipMeUp
{quote} What is the formula ?
no idea I am totally illiterate in programming

I did not write the script

before I just drew a straight line

trading View and Paint are my friends
  • #312
  • Sep 12, 2023 9:58am Sep 12, 2023 9:58am
let assume no readers here is stupid , and narrow minded

let assume everybody here trade in the real world just to make some money and look for practical and simple methodologies.

let us kill some common sense worldwide stupidities about "repainting" and extrapolation etc
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  • #313
  • Sep 12, 2023 10:13am Sep 12, 2023 10:13am
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  • #314
  • Edited 11:35am Sep 12, 2023 10:16am | Edited 11:35am
By the way the "exactness" of the extrapolated boundaries has just to do with the methodology of the calculation of the "width " of the Band which encloses "most of " Price oscillations around the Centered Moving Average (the Trend)
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  • #315
  • Sep 12, 2023 3:45pm Sep 12, 2023 3:45pm
Quoting PipMeUp
{quote} What is the formula ?
Pretty sure it's just taking the last slope of the known MA and projecting it forward from that point in a straight line. This assumes the future slope is going to be the same on each bar. It's a simplistic assumption but you know that the price will generally stay inside the 2 standard deviation bands, and that's the governing principle.

Quote
I don't even know how to estimate the error, even in long hindsight. What was the fair value at a given point in the past?

The centered moving average for a given length can be used as fair value. As you know, you only have the last MA value so error can only be computed up to the current bar minus the lag amount of the MA. So it won't be available for for real-time analysis.
  • #316
  • Sep 12, 2023 11:33pm Sep 12, 2023 11:33pm
Quoting FXEZ
Pretty sure it's just taking the last slope of the known MA and projecting it forward from that point in a straight line. This assumes the future slope is going to be the same on each bar.
Of course it is what he does. It looks good in hindsight or when the price waves nicely like on the right hand side of the screnshot. But doing the same thing in real time when the price is like the left hand side right before the MA turns sharp the envelop will overshot. The price in this situation will be far below the projected envelop. The envelop will later self correct and look nice like it does on the screenshot.
No greed. No fear. Just maths.
  • #317
  • Sep 13, 2023 5:56am Sep 13, 2023 5:56am
Quoting PipMeUp
{quote} Of course it is what he does. It looks good in hindsight or when the price waves nicely like on the right hand side of the screnshot. But doing the same thing in real time when the price is like the left hand side right before the MA turns sharp the envelop will overshot. The price in this situation will be far below the projected envelop. The envelop will later self correct and look nice like it does on the screenshot.
100% agree. These approaches are usually red herrings.

Would be interesting to see chart if it showed all of the projected values at each step so you could see the differences between projected and realized values.
ri · skuht
  • #318
  • Sep 14, 2023 10:27am Sep 14, 2023 10:27am
Quoting Riskcuit
Would be interesting to see chart if it showed all of the projected values at each step so you could see the differences between projected and realized values.
Here you go:
Inserted Video


Indicator for MT5 here:
Attached File(s)
File Type: ex5 yzSmaBandsProjected-1.0.ex5   10 KB | 353 downloads
  • #319
  • Sep 19, 2023 8:54am Sep 19, 2023 8:54am
Hi Riskcuit - reference you example of the 3 trades in post 229 (before you rolled) - i am curious to understand if you used the same position size on trades 2 & 3 (as trade 1). If you are applying different trade sizes, could you explain how you calculate the size?
  • #320
  • Sep 20, 2023 9:32pm Sep 20, 2023 9:32pm
Quoting Toccata
Hi Riskcuit - reference you example of the 3 trades in post 229 (before you rolled) - i am curious to understand if you used the same position size on trades 2 & 3 (as trade 1). If you are applying different trade sizes, could you explain how you calculate the size?
I typically use a fixed lot size for each entry. If it starts really running you can break your "entry" in 2 legs so you add 1/2 of the new entry at a time. For leverage, I wouldn't start with anything larger than 1:1 per entry. Especially when starting out with the system, you should probably 1/2 it just to get a feel for what it's like to actually trade it.
ri · skuht
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