Mean reversion trading

mezarashii
189
mezarashii  

I've posted this system a few times on the web before but never here at forex-tsd. I have been sucking up indicators and ideas since the very first day and it's time for me to give back something slightly different, something which breathes life into a very old problem, how to take a fresh look at the market.

I'm chronicling the system at my blog, so if you want to follow along, I welcome your feedback and observations.

thanks,

meza

http://meantrade.blogspot.com/

P.S. all of the indicators I use are easily downloaded on forex-tsd.

fxbs
3203
fxbs  
Files:
meanrevers.gif  18 kb
fxwin
4
fxwin  

Hi mezarashii,

First, thank you very much for posting your system. it definitely looks like a very good one!!

Could you please explain more about the recommended time frame, exits, stop loss and more about the indicators you are using.

Thank you very much and good luck!

getrich
9
getrich  

can someone post this indicator

mezarashii
189
mezarashii  

My System

fxwin:
Hi mezarashii,

First, thank you very much for posting your system. it definitely looks like a very good one!!

Could you please explain more about the recommended time frame, exits, stop loss and more about the indicators you are using.

Thank you very much and good luck!

Let's see if I can be concise without rambling too much...

There are a few indicators necessary:

34 ema with fibo bands

Murrey Math frame at 128 period

JRSX at 14

BBRSI normal settings with the RSI blanked out

For Forex, I only trade the majors unless I see an extremely clear divergence on all time frames. I primarily use the 1 hr time frame.

The entry for Short would be when price is above the fibo bands, above the 7/8ths and the JRSX has begun to cross down through the BB 20sma (the 20 sma is the center line, I have blanked out the outer lines, I use this version of the indicator because it has been calibrated to fit with the rsi calculation).

The target is either the 4/8ths or the 34 EMA. Because the 34 EMA is always changing with the [rice, sometimes I prefer the 4/8ths because it is less dynamic in terms of a target.

The stop loss for the short entry would be 10 pips above the +2/8ths

When this system is trading really well, I will enter two lots and once the first lot hits target, I move the stop to break even for the second lot and let it ride until there is a signal reversing the trend I entered on. I have nailed some extremely huge trades with this method and try as often as possible to keep the second lot on as long as possible.

You can refer to my blog, as linked in the first post to see my trades in action.

I am currently short Silver and Gold on the one hour timeframe.

droesparky
756
droesparky  

where can I get the BBRSI

mezarashii
189
mezarashii  

Major update on my system I've adapted with the more volatile market conditions. I will offer real-time tutoring of the method starting next week.

mean trades

It's best if you use the WHC demo to observe trades as this is the same platform I use. For us futures, I use spreadbetters in the UK with a UK friend who enters trades for me. I would like to setup an IB with WHC but I can't verify that they are very reliable yet. My account is still quite small and have yet to make any withdrawls.

nicesurf
369
nicesurf  

great..and simple especially after adding with fibo.

mezarashii
189
mezarashii  

If anyone is interested, please send me a pm with your msn or yahoo ID and I will add you to my chat list. I will be giving short term signals from the system and will answer any questions about the setup.

Perhaps it can lead to better understanding of short term moves in the forex and us futures markets.

mezarashii
189
mezarashii  

I have updated my system once again. Please take a look as your feedback is most welcome.

I owe a great deal of credit to Michael at Enthios for opening my eyes to a vision I had for this system many years ago. It seems my ideas weren't that original when they hit me on the head wading through breakout system after breakout and fail system. I think the main draw for people with breakouts is that you can enter a stop and a trailing stop and potentially gain the greatest return from being right or being wrong. But for me the percentages don't suit my temperament. I want to be in rhythm with the market. Mean reversion is about finding balance and riding a wave. Breakouts catch the biggest of all the moves but you get nicked time after time, in fact some of the greats say 70% of the time you'll get nicked, but the big returns will come eventually after time. I would prefer to have a system like that on auto-pilot like a kind of lottery trade that I don't bother with but still get to collect the windfalls when they finally do roll around. If I'm going to actively observe the market I want to be in tune with what it's telling me.

For the moment it's telling me that mean reversion will give and give and give and then 3 out of 7 times will take. It's a risk I would prefer to live with.

So here is my current setup. I grabbed a random chart off of my Metatrader charts to show exactly what I am looking at during the trading day. A huge difference between what I am doing and Market Profile purists do is that my Points of Control are not created in a cohesion of Volume and Price but strictly from price. This is not something I am doing to be subversive, it's more out of necessity since my free charts don't provide accurate volume information. Plus the clever Russians who make most of these amazing free indicators for Metatrader haven't found a way to make a 100% authentic Market Profile indicator =)

5 basic parts:

1)Price should be outside the Keltner bands

2)Stochastics should be outside the bollinger bands and crossing back up inside for a buy(the opposite for short). But they should be below the 35 level. Both the bollinger and the stochastics work together in the same range of 0-100 on my charts.

3)Daily Absolute Strength should be indicating bullish action for a buy and bearish for shorts. If Absolute strength is neutral or weakly biased trades on both sides of the range can be considered.

4)Point of Control should ideally be taken from previous days trading as the current POC can shift quite a bit intraday.

5)Virgin Point of Control levels from previous trading sessions are valid if not touched until the current days trading session. This is perhaps the most unique and fitting elegance of the original Enthios system as it implies that price must revert to a point of balance or as I like to think of it, as a reversion to a mean.

These are the annotations from the trade setup posted above.

1)Absolute Strength is indicating short so there will be no buys during this session.

2)Stochastics have crossed from above the 65 level down through the upper Bollinger band.

3) Virgin Point of Control (VPOC) has been touched. It is advisable to not take trades even if price comes close as most likely price will return and give a better entry later on. Patience is definitely rewarded with VPOC's. Note also that price is outside the Keltners when signalling short.

4)Profits can be taken in one of two ways on the initial position. Either by touching the opposite end of the Keltners, or the median band if you want to be ultra-conservative about exits. Or...

5) If you wish to follow the wave to its end, you can wait for the stochastics to cross up through the Bollingers from the opposite end of the initial setup, in this case from below.

I hope you find this market sense a fresh perspective on a very tired pursuit, finding a psychologically manageable, risk averse and profitable method for extracting healthy profits from the intra-day markets.

Indicators and template also posted below

mezarashii
189
mezarashii  

final indicator needed for template

can only add 5 attachments per post.

Files:
bbrsi_v1.ex4  5 kb