Simple Mean Reversion
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Thread: Simple Mean Reversion

  1. #1
    Hello, and Thank you for stopping by!

    Regardless if you are new or old member of the forum, keep reading here and that I promise you won't be disappointed!
    From my standpoint this thread is the natural continuation of the thread Greater Edge within a Single Candlestick#8221; and here I intend to share with you some of my discoveries regarding this idea.

    As I commented at the first thread, I believe that we may create and apply multiple egies only by using the data which is present within one candlestick.
    However I would like to distance myself from the candlestick for a tool simply because we don't need candlesticks. I think they are only unnecessary distraction.
    We are going to concentrate on the raw information.
    That's why I need to concentrate and to attract your attention the idea of the organic trading cycles. Mainly the daily cycle also to some extend the weekly routine.

    Later in the thread I will try to spell out the connections between time and price which exist within every trading cycle. These associations are the foundation of the egy which you're going to find out in this thread.

    So, let's get started!

    First when we would like to have clear understanding, we must define the main terms.

    Time! All times in this thread are based on GMT 2. This really is my time zone and also the unofficial time zone where we determine the start and the end of every day on the Forex market.

    The majority of the respectable brokers utilize GMT 2 in their own servers. So 00:00 on GMT 2 is just at the center of the most inactive period. (After US near and before Asia open) Here is the onset of the daily candle.

    What is trading cycle? It is very straightforward. The trading cycle constitutes a fixed time period through which we've largely uninterrupted trading action. Each bicycle is separated from another cycles by a time period with very low or no trading action.
    On the Forex market we've only 2 natural bicycles. Daily and Weekly.
    The daily cycle begins at 01:00 and ends at 23:00 daily.
    The weekly cycle begins Monday at 01:00 and ends Friday at 23:00.
    Within our egy we are looking at every cycle as independent occasion!

    Low and high. When I say high or low, I mean the highest or the lowest price of the current cycle.
    Range. The range is simply (high #8211; low) for the current cycle.
    Mid - this really is actually the center of the range. Or, mid=large -(range*0.5); Or (high low)/2;
    sqrt(t) - This really is actually the square root of time. For now we don't need this. But we are going to utilize this calculation later in the next layer of the egy. (Where we add a few more complied optimizations).

    So let's get down to the basics of the egy. I utilize the daily cycle, but you can use the same rules to the weekly.
    First we make the frame. For simplicity in this example we suppose that the cycle begins and ends at 00:00.

    So let's envision a rectangular flat airplane.
    The vertical dimension is a variable and it's dependent on the price. (The range)
    The horizontal dimension is adjusted and in our example is equivalent to 24 hours.
    With this airplane we always track the loion (the coordinates) of their current price, the high, the low, and also the center.
    Here you can see one very common example of completed daily cycle.

    Notice that we also track the loion of the current time in relation to the mid cycle. In the base version we utilize 12:00. Later if we apply the next layer of the machine we can shift this value forward or back in order to maximize the egy.
    The loion of the center of the cycle in part determines the aggressiveness of the egy. The farther away it's from the start - the higher the risk. From this will emerge all kinds of impliions concerning the probability distributions. (I will explain the mechanisms after )

    Now let's see how we could utilize this info. Remember that later we can alter a few of the parameters to get superior optimization but the main structure of the system always remains the same!

    Here are the basic trading rules. I explain only for SELL position. The BUY is the same but inverted.

    We split each position into multiple components. The positions are build using inverted pyramidal structure. We construct the position by scaling in UP TO the highest size. (Not at the top of the max ). The maximum is dependent upon account size, risk appetite and a few other things.

    1. First sign. (If there's absolutely no open position)
    We SELL 1 unit when the current price is equal to the maximum price for the current cycle AND the current time is below the mid cycle. (In our example earlier 12:00)

    2. Secondary signal. (Position buildup ).
    If the current price is over the former entrance price X, then we add 2 components.
    X is a variable which we decide with optimization. As a standard from the initial layer we could use 10 percent ADR. In the next layer we could put in nonlinear calculation together with sqrt(t). But for now we don't need this. You only have to comprehend the basic structure.
    So with this particular system we construct inverted pyramid.
    First open 1
    If the price is over 1 X then we add 2.
    If the price is over 2 X then we add 3.
    We can keep adding till we reach the highest position size. 1 2 3 4 5....

    3. Position Close.
    If we have open position and the current time is prior to the mid cycle (12:00), then we look for correction into the mid range. (50% retracement in the large )
    If the current time is later 12.00, then we look for 25% retracement in the high.
    In the next layer we are going to add more precise and constant calculation utilizing nonlinear formula. For now it's not vital.
    Whatever the outcome during the trading cycle, the ALL positions are closed in the end of the cycle. I our illuion at 00:00 or in 23:00.
    -------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Ok. This is the foundation of the egy! Even with these basic rules, this egy will generate at least 85-90% profitable days. Or 9 out of 10. Average RR on trade by trade basis is over 1:1,5 (or closer to 2) and win% is over 60 percent for certain.

    But when we put in the next layer with optimizations and much more precise calculation we could bring the achievement rate up to 98% profitable days.

    Here you may also download the indior which tracks the cycles. It is very useful tool for visual/manual backtesting. At least I use it a lot.
    Https://www.forexforum.co.za/attachm...1798654550.ex4
    Who knows, if you dig deep enough, maybe you will discover another secret egies based on a single candlestick. like I said there are at least 2 more.


    You can expect more details in the upcoming posts. (When I've got time).
    And I promise you that when I finish with this particular thread, everybody reading this will have the chance to earn money with this system!

  2. #2
    Quote Originally Posted by ;
    quote You answered your own questions! Of course we want minimum range. This is part of the egy but I left the details for next posts. (I can not write long posts now) After all we attempt to ch just 50%(max) of the range during the first half of the day. So by way of example if we've range 5 pips it does not make sense to open position since the maximum possible profit is simply 2.5 pips. That is why in the second system layer I use sqrt(t) to find optimal entry points. I have this calculation in graphical/visual shape as well. I will...
    Can you share this file as well?

  3. #3
    Quote Originally Posted by ;
    Hi, and thanks for stopping by! Regardless if you're new or old member of this forum, keep reading here and that I promise you won't be let down! From my standpoint this thread would be the normal continuation of this thread Greater Edge within one Candlestick” and that I mean to discuss with you some of my discoveries concerning this idea. As I commented at the original thread, I think that we can create and apply numerous egies only by using the information that is...
    I'm in... Keep up the great job!

  4. #4

  5. #5
    Can you please refine the principles?

    At the first tick of the day that the price is the only one. We've got price=highest=lowest=mid. If I mechanically follow the principles:

    that I have no place open AND the current price is equal to the maximum price AND the current time is under the mid cycle
    =gt; According to rule 1 I shall open a position.
    Now I've an open position AND the current time is before the mid cycle AND the current price is equivalent to mid range
    =gt; According to rule 3 I shall shut the position!

    Clearly my case is stupid as it is a degenerate case however a minimum time following open (source of this box) or minimal range may be necessary especially since the source is at a time of cheapest volatility in which the range will remain tight for some time and the low liquidity is likely to make the price cross the mid many times fast.

  6. #6
    You're on the ideal track that this system is the genesis of a rewarding journey.
    PM me and that I can discuss my notes on analysis of one daily candle as well as the cycle or phase every Foreign Exchange pair exhibits daily.

    Roy

  7. #7
    Quote Originally Posted by ;
    Could you please refine the principles? At the first tick of the day the price is your just real one. We have price=highest=lowest=mid. If I mechanically follow the rules: I have no position open AND the current price is equal to the highest price AND the current time is under the mid cycle =gt; Based on rule 1 I shall open a position. Now I have an open position AND the current time is ahead of the mid cycle AND the current price is equal to mid range =gt; Based on principle 3 I shall shut the position! Clearly my example is stupid since it's a degenerate case...
    You answered your own questions!
    Of course we want minimum range. This is part of the egy but I abandoned the details for next posts. (I can't write long posts now)
    We all try to capture just 50%(maximum ) of the range throughout the first half of the day.
    So by way of example if we've range 5 pips it does not make sense to open position since the maximum possible profit is simply 2.5 pips.
    This is the reason why from the next system coating I use sqrt(t) to determine optimal entry points. I have this calculation in graphical/visual form also.

    I shall explain these things later! You will see how everything fits together if we add automation and once we diversify the machine to run concurrently on large number of markets. It's the actual thing! With the ideal technology this system can become high frequency profit monster!

  8. #8
    I am playing on this system today, I really like it. Whenever there are no strong trends it'll perform very well. I am thinking that to open a transaction, the current range shouldn't be lower than 50% of ADR. Or the lower your current range, the bigger TP degree, which gets lower through the time.
    The 25% retracement are really wise thing.
    Some of the transactions today:

    Looking forward the best way to include sqrt(t) to this.

  9. #9
    Quote Originally Posted by ;
    quote Much obliged Alpha Omega...
    Hello AlphaOmega,
    This egy I have worked for last 3 years. The enhanced use of this egy require some specific Technical conditions. I have optimized it to reach to 50% degree at least of the range. It needs somewhat different rules but of course based on this simple egy you've clarified here.Be alert, Taking into account only the Time block and Daily price range can easily flush-out your account. A couple failures will lead to margin call since there's not any limit on how much price can move against you until the end of the period block. However, for sure if you're able to combine the specialized analysis also you are able to discover good egies.


  10. #10
    Hi AlphaOmega and thanks fort this egy.

    What is going to happen whether the market make a massive movement in one direction and does not come back? With this pyramid system, You will likely have a lot of positions in loss.

    You are able to observe this condition twice on Your screenshot in the first post. I believe that it would be hard to recover from those huge losses...

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