Fx mean reversion strategy

Mean Reversion Trading Strategy,
The mean gives the average value. In trading , Mean Reversion Strategies rely technical indicators to indicate when the market is away from its mean. For Example I m using this strategy in combination with price action.
Mean reversion theory is a well attested phenomenon that, when learned well and traded appropriately, can be a very profitable approach to the markets. Mean reversion is basically based on the theory that price does not like to move or sit away form its mean. So whenever price is at extreme or higher levels , sellers jump in to take advantage of the higher than average price.
Indicators we need:
Another example to explain more:
What do you think about this strategy?
Thank you for reading this article. I hope you will find the Mean Reversion Trading Strategy helpful for your trading. Happy trading everyone! :-)

Fx mean reversion strategy

The most famous death cross is the S&P500 200MA crossing the 50MA. Traders have arbitrarily assigned fantastic meaning to the cross because it has preceded two of the biggest market loses in history. However, that does not mean it will always do so. After all, on July 1st of 2010 after dropping 209 points, the death cross downward occurred and the S&P promptly shot northward, gaining 365 points. Then again on August 12th 2011 there was another death cross downward, and price is nearly back to levels associated with that cross.
If you are trading the long extension AWAY from the MA line, you are counter trend trading. This strategy is not for the light of heart, and not something very many traders do when first starting out. The most common use, is getting into trades with the trend on the pull backs to the MA line.

Mean Reversion.
What is the 'Mean Reversion'
Mean reversion is the theory suggesting that prices and returns eventually move back toward the mean or average. This mean or average can be the historical average of the price or return, or another relevant average such as the growth in the economy or the average return of an industry.
BREAKING DOWN 'Mean Reversion'
Percent returns and prices are not the only measures considered mean reverting; interest rates or even the price-earnings ratio of a company can be subject to this phenomenon.
A reversion involves the return of any condition back to a previous state. In cases of mean reversion, the thought is that any price that strays far from the long-term norm will again return, reverting to its understood state. The theory is focused on the reversion of only relatively extreme changes, as normal growth or other fluctuations are an expected part of the paradigm.
The mean reversion theory is used as part of a statistical analysis of market conditions, and can be part of an overall trading strategy. It applies well to the ideas of buying low and selling high, by hoping to identify abnormal activity that will, theoretically, revert back to a normal pattern.
The return to a normal pattern is not guaranteed, as an unexpected high or low could be an indication of a shift in the norm. Such events could include, but are not limited to, new product releases or developments on the positive side, or recalls and lawsuits on the negative side.
Even with extreme events, it is possible a security will experience a mean reversion. As with most market activity, there are few guarantees on how particular events will or will not affect the overall appeal of particular securities.
Mean Reversion Trading.
Mean reversion trading looks to capitalize on extreme changes within the pricing of a particular security, based on the assumption that it will revert to its previous state. This theory can be applied to both buying and selling, as it allows a trader to profit on unexpected upswings and save at the occurrence of an abnormal low.

The Mean Reversion Trader – What Forex Style Suits You?
Mean reversion trading is built around the idea that high and low prices are temporary and a price will tend to go back to its average over time.
So a mean reversion trader will establish an average they think the price will revert towards, and levels they will trade when the price deviates far enough. This is similar to what market makers do in establishing a mid and standing ready to buy below that price and sell above it.
Famous Mean Reversion Trader:
As long as markets display such bipolar disorder and switch from periods of mania to periods of depression, then mean reversion should continue to merit worth as an investment strategy.
O’Connor and Associates used this market making style of trading to become one of the biggest participants in U. S. options exchanges in the ten years after their founding in 1977.
Their expertise in options pricing and risk management led to Swiss Bank Corporation first forming a joint venture.
Time it took to become one of the biggest participants in the US options exchanges.
5 Facts About Mean Reversion Trading.
1) Fundamental Analysis.
Mean reversion traders need to have a solid understanding of economic fundamentals as exchange rates can diverge from the historical mean for long periods due to factors such as protracted trade imbalances, political uncertainty, poor economic policy and other macro-economic factors.
2) The Long Term Strategy.
The Mean Reversion strategy caters better to long-term trading as there is a clearer picture of an average over a longer period.
3) Observe the Risks.
A mean reversion trader must be careful to observe potential events that may adversely impact the currency trade. Such events have the potential to cause the exchange rate to diverge from the mean for long periods and significantly impair levels of capital.
Mean Reversion Arbitrage is often best deployed in cross exchange rates where two economies are closely aligned as significant deviation of the rate from the mean can quickly lead to a re-balancing of resources and an exchange rate re-alignment towards the mean.
Technical indicators can be a useful addition to the mean reversion trader to help them identify the turning point of a trend where the exchange rate has deviated significantly from the historical mean.
Mean Reversion Trading On MahiFX.
Characterise the nature of the move.
Step one is to look for any news that might be getting priced in.
Monitor your trade's price action from the trading area book charts.
You can open the books and look at more detailed charts of the price action across all the pairs and across different horizons. Note the EUR/USD book chart shows hourly periods, while the GBP/USD chart shows 10 minute periods.
Navigate to the charts section.
A useful chart for mean reversion trading would be one with multiple instruments comparing their returns over a defined sample period. The example below shows EUR/GBP, GBP/USD and EUR/USD performance over the last 9 months.
** Click to enlarge.
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