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 + kStdDev (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