(binned per thread starter’s request) reversionX: A Rule-Based

Straight to stop-loss—LOL. If I were to re-enter, I’d definitely wait for more confirmation this time—like the MACD turning red or a strong price action signal, such as a bearish engulfing candle.

Rules Are Just a Starting Point — The Edge Is in the Data

Let’s talk about mean reversion, because that’s really the core concept behind how this whole approach works. Every market — whether it's forex, indices, or crypto — moves in waves. Price stretches away from its average or “fair value,” and then, more often than not, it snaps back toward it. This is the basic idea of mean reversion: when price extends too far in one direction, there's a statistically increased probability it will return to the mean — or at least pause or correct before continuing.
This “mean” can be represented in different ways:

1. a moving average (like the centerline of Bollinger Bands)
2. a volume-weighted average price (VWAP) -
3. even just a psychological midpoint traders refer to intuitively

Price rarely moves in a straight line forever. Even in trending markets, you’ll often see reversion waves or pullbacks — that’s because markets move in cycles of impulse → correction → continuation. And retail traders, especially intraday, often get caught chasing the impulse, while the smarter move is fading the exhaustion.

Now, why does mean reversion work?

It works because of two things:

1. Liquidity and Position Unwinding
   When price moves too far, too fast, it often triggers stops, overleveraged entries, or emotional chases. At some point, there's no one left to buy (or sell), and the move collapses under its own weight. That’s when profit-taking and stop-outs drive price back toward the average.
2. Market Microstructure & Rebalancing
   Institutional flows are not continuous — they rebalance throughout the day, especially around session opens, news events, and key levels. These rebalancing flows create natural pauses and reversion zones. Price doesn’t move just because of trend — it moves around imbalances, and those imbalances often snap back when stretched too far.

And just to be clear — the specific rules I follow (like waiting for two yellow bars or two blue bars, or using slightly wider stops) are not some kind of holy grail. They’re simply what produced the most stable equity curve in my own backtesting across different market conditions. That doesn't mean they’re the only way to trade this concept — it just means they fit my style, my risk tolerance, and the way I interpret structure.

If you test and find that entering after one bar works better for your instrument, timeframe, or personality — go for it. That’s the beauty of building around a core concept like mean reversion: the framework is flexible, but the logic is sound. What I will say with confidence is this — don’t judge any strategy based on 1, 3, or even 10 trades. It’s statistically meaningless.

Let’s put it into perspective:

If your strategy has a 55% win rate, the probability of seeing 3–5 losses in a row isn’t low — it’s inevitable over time. Even with a solid edge, you can have drawdowns. That’s why professional strategies are always evaluated over at least 100 trades, often more. This is how you account for variance and calculate true expectancy. One good or bad trade tells you nothing. Ten trades give you a rough feel. But only at 100+ trades do the numbers start to converge toward the actual performance of the edge. That’s basic law of large numbers. Anything less, and you're just reacting to noise — not data.

Hey, could you share your settings on ReversionX indicator, I didn't get this signal on my TradingView. Thanks!

Hi, they are the settings found at page 1 of this thread. Hope this helps.

Spotted an interesting setup forming — Price is struggling to break through support and hovering around the daily open and previous week’s high. On top of that, we've got a reversionX trigger firing. Let’s see how it unfolds.

If you noticed... most of your very good Setups were when your Entry was below the initial BB Entry or at least at the same height/price. .

I don't think I quite understood that. Could you please elaborate a bit more?

Good Setup
near the same height of BB Entry


Bad Setup
Far from initial BB Entry



Of course thats not based on just 1 example... I have looked at several Setups back in time and its pretty consistent.
At least thats my observation! You might have a different opinion!

Hmm... understood.. will track from now

Trade Breakdown:

1. Trade 1: -1R
2. Trade 2: Invalid
3. Trade 3: +2R / 0R (Break-even)
4. Trade 4: +2R
5. Trade 5: Invalid
6. Trade 6: +2R or Break-even
7. Trade 7: Invalid
8. Trade 8: -1R
9. Trade 9: +2R

Summary:

1. Conservative outcome: +2R
2. Aggressive (non-conservative) outcome: +6R

Note: The results are based on fixed 2R targets.

Why was Trade 5 invalid? weak candle?

[quote=CogAlpha;15274245]{quote} Why was Trade 5 invalid? weak candle?[/quote

Yes that’s one reason ... and on top of that it’s after 13 candles, better to skip that…

One of those days.. no signals what so ever on gold in newyork session yet... no pre market trades nothing

Missed the trade ..Gold is on fire..

Stayed away from oil because of the news in Middle East but.. if anyone took these signals, there are on fire.....

Hi Rishee, thank you for regularly posting, I am watching with interest, seems like a solid system.

CogAlpha is onto something, I believe. Look at those oil trades. All of the short trades started from above the BB middle line and all the long trades from below the middle line. I.e. if you entered in a position where price was coming back from being over-extended, you likely won.

As Borat would say, High Fiiiive!

Yes, that’s definitely one way to look at it . But I’ve also seen plenty of cases where price extends even further and we get a divergence on the MACD — those can be killer setups too. Just depends on how it all lines up. For example, gold setup played out beautifully

Like that divergence. But, look, even on this trade, entry was above BB middle line

Actually, we don't take trades if the price has crossed and closed above/below the basis line ... not sure which setups are you are referring to

Another killer trade on US30