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.
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.
- 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