Mean Reversion 2.4
Unique indicator that implements a professional and quantitative approach to mean reversion trading. It capitalizes on the fact that the price diverts and returns to the mean in a predictable and measurable fashion, which allows for clear entry and exit rules that vastly outperform non-quantitative trading strategies.
- Clear trading signals
- Amazingly easy to trade
- Customizable colors and sizes
- Implements performance statistics
- Outperforms most trading strategies
- Displays suitable stop-loss and take-profit levels
- It implements email/sound/visual alerts
How it works
The indicator measures the standard deviation around a fully customizable moving average from a higher timeframe and uses a trend-following approach to find trades with precision. Trades are found by diving into the price action of the current chart and closed when the price returns to the mean price band, calculated from a higher timeframe of your choosing.
Because of the way it is coded, the indicator will stay away from high volatiltiy and strong trending markets and trade only predictable scenarios in which a return to the mean is feasible inside of an acceptable volatility to directionality ratio.
Anatomy of the Indicator
- The green line is the moving average from a higher timeframe (a.k.a the mean)
- The dotted area is the typical price band around the moving average
- The blue line is the breakout price for bullish trades
- The red line is the breakout price for bearish trades
Trades are taken against the mean and closed inside the typical price band.
What to trade
Mean reversion is always taking place in virtually all markets.
- Forex Pairs
- Stock Indices
- Precious Metals
- Crypto Currencies
- H4 with MN1 Moving Average
- H1 with W1 Moving Average
- M15 with D1 Moving Average
- M1 with H4 Moving Average
- The timeframe from which the moving average (mean) is calculated. It must be a higher timeframe from the current chart.
- Std. Dev Period
- The standard deviation period to calculate the typical price band around the mean.
- The multiplier of the typical price band. A higher value will create a wider price band and decrease the trading frequency. In some cases, it can make sense to decrease it, for instance, if you are trading long trades only against a moving average calculated using low prices only.
- Represents the multiplier for the trend channel calculated from a higher timeframe. A lower value will increase the trading frequency.
- Max History Bars
- The amount of past bars analyzed when the indicator loads. A lower value will decrease the load time.
- MA Period
- The moving average period used to calculate the mean.
- MA Applied Price
- The price applied for the moving average.
- MA Method
- The moving average method used for the moving average.
- MA Shift
- The shift of the moving average used as a mean.
- This parameter allows you to find only long trades, short trades or both. This can be useful depending in your market analysis or the moving average applied price selected. For instance, you might trade buy only against a moving average calculated using low prices, or sell only against a moving average calculated using high prices only.
- The indicator can plot an optional stop-loss, which can be "tight" or "normal". For mean reversion, stop-losses are usually not used and instead, losses are accepted when the price returns to the typical price band or the mean.
- The indicator plots a take-profit, which can be "small", "regular" or "large". Each category represents a different price point of the typical price band, being the first the closest value and large the farthest value.
- Min Profit in Pips
- The indicator will filter out any trades that offer a profit in pips below this value. Useful for trading small timeframes.
- Time Filter
- The indicator can filter out trades that have no or little chance of reverting to the mean during the next few bars. It does so by calculating the typical price movement per bar in the reference period. A higher value will produce more trades and a lower value will discard more trades. To disable this feature, type "-1".
- Range to Profit
- The range to profit ratio compares the profit target of a a potential trade against the distante to the highest/lowest of the day. A higher value will produce less but more profitable trades. If the stop-loss feature is not in use, it makes sense to disable this filter by typing "-1" as its value.
- Cash-in at period end
- The indicator can close trades, at any profit, before the period ends. If enabled, this feature will decrease the variance in the trading results.
- Draw Arrows
- Enable or disable the signal arrows in the chart.
- Draw SL/TP Levels
- Display or hide the SL and TP levels in the chart.
- Bullish Arrow
- The color of bullish labels and buy arrows.
- Bearish Arrow
- The color of bearish labels and sell arrows.
- Label Color
- The color of text labels in the chart.
- Perform and fisplay self-analyzing statistics on the chart.
- Draw History Arrows
- Display tester-like entry-exit arrows in the chart. Visible only in bar charts.
- Draw Trade Results
- Display trade result in pips for all past signals.
- Draw Entry-Exit Lines
- Connect entry-exit points with lines, tester-like.
- Enable or disable alerts of all kinds.
- Manual Pip Value
- Override the pip value for the chart. Zero means autocalculated.
- Does the indicator repaint?
- If you use a "MA Shift" parameter of 1, the indicator will never, ever repaint. However, if you use a MA Shift of 0 (zero), the indicator will repaint the moving average slightly as it is created by the price action in real time. It won't affect the trades very much since these are taken very far away from the moving average.
- Does the indicator back paint?
- No, the indicator does not back paint.
- Does the indicator implement alerts?
- Yes, it does. It implements alerts of all kinds, even when trades need to be closed.
- Why do I see many signals on some instruments and very few in others?
- The indicator is coded in such a way that it'll stay away from high volatility and strong trends. A high volatility to directionality ratio will cause almost no trades to be found. If you still want to trade certain markets and take the risk of higher volatility, you can disable the "Range to Profit" and the "Time FIlter" filters by setting them to
- What timeframe selections are best?
- You can trade a mean from any timeframe. For example, you can trade a D1 mean from the M15 chart, a W1 mean from the H1 chart or a MN1 mean from the H4 chart. These are three perfect examples which provide good entries.