Developing a Profitable Mean-Reversion Trading System with Indicators

Trading Ranges are one of the most common price action patterns that traders attempt to target. Mean-Reversion Strategies built with Technical Indicators can work well during this market dynamic.

This video explains the concepts of a Mean-Reversion Strategy and explains how indicators can be used to inform the trader (or their algo) what pattern the current price action is exhibiting. Furthermore, the identification of times of short-term over-bought or over-sold behavior is also covered.

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This is Episode 12 in the Darwinex 'Trader Evolution' Playlist.

Video Contents:
00:00 Don't Chase Price
00:20 Developing a Mean-Reversion Strategy
00:37 Why Darwinex?
01:27 Three Trading Strategies to drive profits
02:02 Trading Ranges and Mean-Reversion Strategies
03:01 Market Regimes in Price Action
04:44 Trading Range
05:47 Market Filter
08:40 Using an Oscillator to identify over-bought / over-sold
13:52 Next Episode - Breakout Trading Strategies

Content Disclaimer: Past performance is not a reliable indicator of future results. The contents of this video (and all other videos by the presenter) are for educational purposes only and are not to be construed as financial and/or investment advice.

[rupindersingh]

You sir are a brilliant teacher, you explain us the strategies in lucid and easy layman language that even a novice trader can understand the nuances of trading.

Keep on doing the brilliant work.

Cheers.

[donbangert]

You know it's a good video when your mind sets to coding ideas before it's even finished. 😉

[leonjbr]

13.11.2021. Martyn: I have tested the ideas in your video and I can tell you they work. I have taken a mean reversion strategy and I have introduced a filter based on SMA and the Calmar ratio has improved by a 30%. Awesome. Thanks a lot. 14.11.2021. I have to add that the efectiveness of the filter seems to depend somewhat on the asset.

[eliremy]

Algo Trading University ! Thank you Darwinex and Martin for the knowledge you provide. Always grateful

[parallelnative]

Very well explained, Knowledge to word count ratio is through the roof with this one.

[chibuikemezepue]

Amazing content as always. Always happy to see your notifications.

[laughinginthes]

How do you deal with the regime classification delay? How long after a cross is it no longer considered a ranging regime? As far as I can tell with the crosses shown, you would still be classified as a range regime while the explosive move was happening, and even using relatively short delay periods, by the time it's classified as a momentum regime, the value in the explosive move is over.

If the delay period is dropped low enough that it can classify momentum regimes in a fast enough manner to be useful, the cross filter will constantly mis-classify ranging regimes as momentum regimes.

[seanjohnson]

Thanks Martyn! really looking forward to this series

[jocollo]

Really great tutorial with good pieces to follow. Nice to be with you again. Thanks! 🤓

[rajeshtodkar]

Thank you Martyn, Nice informative video

[donbangert]

Using Aroon as a market filter shows promise.

[lpintelos]

Hi Whats the time scale of the chart?

[bbbogey]

When price goes up you should think sell sell sell. When price goes down you should think buy buy buy. What actually occurs is FOMO amongst private savers and eveyone wants to get in whereas traders are looking to get out. When you see a price increase in your local retailchain for goods you dont buy more but instead look for alternatives. But somehow that is not the case when it comes to stocks. Everyone wants to get in on the action and that drives up the price. When something goes up to fast it usally comes down as fast the reason being that the market dont like these movements though every price point should be traded. So sell after 2-3 days and buy when it comes down again.

[markbest]

Will you cover how to detect that the regime is broken? The issue with mean reversion is the penny in front of the steam roller problem. Do you use stops on the positions and maybe build in slowly while looking for slowing momentum on a shorter timeframe. I can think of other things but was interested in your take.

[khaledarja]

Martyn,

I believe that one of the best robustness tests is to test whether the strategy is profitable on another market ( with less restricted conditions), but in our context of mean reversion, isn't that over optimistic ? Mean reversion strategies are by their nature fitted to the market condition, so trying to test them ALSO on another market wouldn't that limit our passed strategies?
that works with me with breakouts, but I'm having a hard time with mean reversion.. I would appreciate to hear your insight !

[XJns]

I can tell by the EURUSD price on the left hat you filmed this on the 10th of November 2021. That's all.