Mean Reversion Strategy

This statistical approach looks for short-term extremes in price relative to its recent average. The strategy uses a moving average to define fair value and measures the deviation from that mean through a standard deviation calculation.

Testing indicates an average annual return of about 85%. It performs best in the crypto market.

Trades are opened when price pushes a set distance from the average. A dip below the lower band triggers a long entry, anticipating a rebound toward the mean, while a rally above the upper band prompts a short. Once price touches the moving average again, any open position is closed.

The method appeals to traders who prefer a contrarian style and want clearly defined entry and exit zones. Because it relies on volatility-based bands, it adapts to quieter or more active markets while still keeping losses in check via a fixed stop-loss.

Details

• Entry Criteria:
  • Long: Price < MA - k*StdDev (below lower band)
  • Short: Price > MA + k*StdDev (above upper band)
• Long/Short: Both sides.
• Exit Criteria:
  • Long: Exit when price crosses above the moving average
  • Short: Exit when price crosses below the moving average
• Stops: Yes.
• Default Values:
  • MovingAveragePeriod = 20
  • DeviationMultiplier = 2.0m
  • StopLossPercent = 2m
  • CandleType = TimeSpan.FromMinutes(5)
• Filters:
  • Category: Mean Reversion
  • Direction: Both
  • Indicators: Mean Reversion
  • Stops: Yes
  • Complexity: Intermediate
  • Timeframe: Intraday
  • Seasonality: No
  • Neural networks: No
  • Divergence: No
  • Risk Level: Medium