mean reversion strategy forex

be downloaded below. Open a, long position when the price reached the bottom (green) border of the channel. Mean Reversion Trading Mean reversion trading looks to capitalize on extreme changes within the pricing of a particular security, based on the assumption that it will revert to its previous state. Forex Mean Reversion Manual. Exit when the price returns to the middle of the channel (yellow line). If the price has reached the second top / bottom (green / red) line of the channel, it means a stronger signal. It applies well to the ideas of buying low and selling high, by hoping to identify abnormal activity that will, theoretically, revert to a normal pattern.

Mean reversion strategy forex
mean reversion strategy forex

This was compounded by the fact that although the mean (by default) is the obvious Target, by the time price reverted, much of the time the mean had risen to (or above) my Entry. I spent many months on this, back-testing and more back-testing, Currency pair after Currency pair and time frame after time frame looking for a strategy to exploit this "known certainty". As with most market activity, there are few guarantees on how particular events will or will not affect the overall appeal of particular securities. The return to a normal pattern is not guaranteed, as an unexpected high or low could be an indication of a shift in the norm. The other issue was that many times reversion takes much longer than expected, more often than than expected. Next Up, breaking down mean, reversion this theory has led to many investing strategies involving the purchase or sale of stocks or other securities whose recent performances have greatly differed from their historical averages. A reversion involves the return of any condition back to a previous state. Price, reaching the upper channel line or lower channel line, always eager to return to the middle of channel. However, a change in returns could be a sign that the company no longer has the same prospects it once did, in which case it is less likely that mean reversion will occur. I made the following observations. Platform: Metatrader4, currency pairs: Any, recommended majors, trading Time: Any, recommended M5 or higher.

Percent returns and prices are not the only measures considered mean reverting; interest rates or even the price-earnings ratio of a company can be subject to this phenomenon. This mean or average can be the historical average of the price or return, or another relevant average such as the growth in the economy or the average return of an industry.