Hi everyone, I am seeking tips, help, or collaboration with my mean reversion setup. So my mean reversion setup has been extremely successful thus far. The study uses several indictors to find the highest or lowest point of overextension in a timeframe (I use 30m with this one). The setup has an EXTREMELY high win rate and almost none of my trades have gone negative using it. The reason it's so successful is because when it generates a signal, there is an extremely high likelihood that it is at or near a high for the current time frame and that a reversion is likely. I have found that almost 100% of the time, my play will net money, however, the profit is often a very small move. You could make more money with this by letting it run but I find that to be more risky. Therefore, I only trade this setup in the forex markets because the leverage allows me to capitalize off of these small moves. I have been using this for a while now and it has been consistently successful. I only lose money when I get greedy and let plays run (though sometimes I make a ton from this as well). Here is a screen shot of the setup and then an explanation below:
Explanation: The fat middle line is a linear regression trendline. The sets of lines immediately above and below it are adding one standard deviation (there's 2 lines because I use a slightly different calculation for each) and then the sets of lines on the outside are 2 SD. The lines also automatically change color (green or red) depending on if the LR trendline is sloping up or down. The bands are polynomial regression bands, which I like more than bollinger bands because they produce far fewer false hits. The reversal bubbles are actually from a study from this site. I changed them a bit to make them produce fewer false signals but they're essentially the same. The lines and bands change to yellow when the price crosses them. The first subgraph is an RSI indicator. The important one is the white one, which is just a slow RSI with 90 and 10 as overextended values. The other lines are slower RSI and an average of the RSI, they are less important. The bottom subgraph is the Kairi relative index. This is a rarely used indicator originating in Japan. I was inspired by Takashi Kotegawa, the legendary trader, who uses it. This measures the distance between the price and the 25 MA. The yellow line is 90% of the highest or lowest distance away from the MA, so that is considered overextended.
How I use it: Using this setup is pretty simple. There are 2 necessary components and then the rest of the components simply help to get a better entry. The first necessary component is that price must cross at least 1 of the outermost lines (the darker red lines on the top and bottom). The price rarely crosses over the outermost lines (because 95% of all data is within 2 SD), but it very often gets close. The next necessary component is that RSI must be overbought or oversold depending on the direction you want to trade. For example, if the stock crossed the bottom outermost line, RSI would need to be oversold. The rest of the indicators are simply used to get better entries. The Kairi indicator produces signals far less often than RSI, however, if the other conditions are met AND Kairi is overextended, then you definitely have a great setup. Finally, the bands produce by far the fewest signals and rarely produce signals near the outermost lines, so if you do have a setup where everything hits including the bands, then that's an excellent trade. I use the reversal bubble indicator as confirmation that I took the correct trade but again this is not necessary. Like I said before, I use this on the 30m timeframe and only use it on forex because it's very good at predicting tops or bottoms. However, though it is good at predicting tops or bottoms, it cannot predict when a full reversion to the mean will happen. This is why I like to capitalize on very small moves, which is profitable because of the leverage with forex. I haven't tried this fully with equities but don't think it would be as successful.
My request: I want to improve this indicator. It's already extremely successful but I want to make it even better. Here are my questions:
1. Generally, what indicators would add to improve this? Seriously, I'm open to anything
2. If you are familiar with statistics, what are some other statistical studies/models I could do to improve this. Again, I am open to anything
3. What are some overbought/oversold or mean reversion indicators that you find useful? I have searched the internet for more indicators but keep finding RSI, stochastic, and things like that, so I'm kind of looking for some obscure indicators here.
4. Literally, anything else that you could think of that might make this setup better would be greatly appreciated.
I am willing to share y setup with anyone who gives me some useful information! Feel free to comment or DM me! Thanks everyone! @BenTen @J007RMC @horserider @MerryDay just wanted to tag all of you in this to see what you think because I've learned so much from all of you about thinkscript!
Explanation: The fat middle line is a linear regression trendline. The sets of lines immediately above and below it are adding one standard deviation (there's 2 lines because I use a slightly different calculation for each) and then the sets of lines on the outside are 2 SD. The lines also automatically change color (green or red) depending on if the LR trendline is sloping up or down. The bands are polynomial regression bands, which I like more than bollinger bands because they produce far fewer false hits. The reversal bubbles are actually from a study from this site. I changed them a bit to make them produce fewer false signals but they're essentially the same. The lines and bands change to yellow when the price crosses them. The first subgraph is an RSI indicator. The important one is the white one, which is just a slow RSI with 90 and 10 as overextended values. The other lines are slower RSI and an average of the RSI, they are less important. The bottom subgraph is the Kairi relative index. This is a rarely used indicator originating in Japan. I was inspired by Takashi Kotegawa, the legendary trader, who uses it. This measures the distance between the price and the 25 MA. The yellow line is 90% of the highest or lowest distance away from the MA, so that is considered overextended.
How I use it: Using this setup is pretty simple. There are 2 necessary components and then the rest of the components simply help to get a better entry. The first necessary component is that price must cross at least 1 of the outermost lines (the darker red lines on the top and bottom). The price rarely crosses over the outermost lines (because 95% of all data is within 2 SD), but it very often gets close. The next necessary component is that RSI must be overbought or oversold depending on the direction you want to trade. For example, if the stock crossed the bottom outermost line, RSI would need to be oversold. The rest of the indicators are simply used to get better entries. The Kairi indicator produces signals far less often than RSI, however, if the other conditions are met AND Kairi is overextended, then you definitely have a great setup. Finally, the bands produce by far the fewest signals and rarely produce signals near the outermost lines, so if you do have a setup where everything hits including the bands, then that's an excellent trade. I use the reversal bubble indicator as confirmation that I took the correct trade but again this is not necessary. Like I said before, I use this on the 30m timeframe and only use it on forex because it's very good at predicting tops or bottoms. However, though it is good at predicting tops or bottoms, it cannot predict when a full reversion to the mean will happen. This is why I like to capitalize on very small moves, which is profitable because of the leverage with forex. I haven't tried this fully with equities but don't think it would be as successful.
My request: I want to improve this indicator. It's already extremely successful but I want to make it even better. Here are my questions:
1. Generally, what indicators would add to improve this? Seriously, I'm open to anything
2. If you are familiar with statistics, what are some other statistical studies/models I could do to improve this. Again, I am open to anything
3. What are some overbought/oversold or mean reversion indicators that you find useful? I have searched the internet for more indicators but keep finding RSI, stochastic, and things like that, so I'm kind of looking for some obscure indicators here.
4. Literally, anything else that you could think of that might make this setup better would be greatly appreciated.
I am willing to share y setup with anyone who gives me some useful information! Feel free to comment or DM me! Thanks everyone! @BenTen @J007RMC @horserider @MerryDay just wanted to tag all of you in this to see what you think because I've learned so much from all of you about thinkscript!
