NexusFi: Find Your Edge


Home Menu

 





Mean reversion works, but can you stand the pain?


Discussion in Psychology and Money Management

Updated
      Top Posters
    1. looks_one ElChacal with 6 posts (0 thanks)
    2. looks_two Fat Tails with 5 posts (20 thanks)
    3. looks_3 gregid with 3 posts (7 thanks)
    4. looks_4 shodson with 3 posts (6 thanks)
      Best Posters
    1. looks_one MXASJ with 9 thanks per post
    2. looks_two Fat Tails with 4 thanks per post
    3. looks_3 gregid with 2.3 thanks per post
    4. looks_4 shodson with 2 thanks per post
    1. trending_up 10,343 views
    2. thumb_up 45 thanks given
    3. group 11 followers
    1. forum 23 posts
    2. attach_file 7 attachments




 
Search this Thread

Mean reversion works, but can you stand the pain?

  #11 (permalink)
 
Fat Tails's Avatar
 Fat Tails 
Berlin, Europe
Market Wizard
 
Experience: Advanced
Platform: NinjaTrader, MultiCharts
Broker: Interactive Brokers
Trading: Keyboard
Posts: 9,888 since Mar 2010
Thanks Given: 4,242
Thanks Received: 27,102


ElChacal View Post
@Fat Tails , one question. I noticed you use SMA(3) as the smoother for your Bollinger Universal indicator. In case I wished to use "smoothed" VW std. deviations, would you suggest to use (3) as the period or the same period as the Middle band? Assuming I am using a VWMA.
I know this is a VERY OPEN, kinda silly question but you have a lot of experience with these indicators and can probably share some of your preferences.
Once again, thanks for all your indicators.

I just wanted to smooth the bands a little bit. I could have used a period of 2 or 3. If you use a larger period, the bands will be out of whack, not recommended.

The Bollinger Universal does not come with a formula for the volume-weighted standard deviation. It just uses the default standard deviation that comes with NinjaTrader.

Started this thread Reply With Quote
Thanked by:

Can you help answer these questions
from other members on NexusFi?
Exit Strategy
NinjaTrader
NT7 Indicator Script Troubleshooting - Camarilla Pivots
NinjaTrader
My NT8 Volume Profile Split by Asian/Euro/Open
NinjaTrader
Ninja Mobile Trader VPS (ninjamobiletrader.com)
Trading Reviews and Vendors
Build trailing stop for micro index(s)
Psychology and Money Management
 
  #12 (permalink)
 
ElChacal's Avatar
 ElChacal 
Houston, TX
 
Experience: Intermediate
Platform: NinjaTrader TWS Barchart
Broker: IB / IB
Trading: SPY, QQQ
Posts: 414 since Nov 2014
Thanks Given: 471
Thanks Received: 278

Well, here's an indicator I made with Volume Weighted Std Dev bands and uses VWMA / VWAP as Middle band options.

I briefly backtested it and the results were not significantly better than standard Bollinger. Will keep digging.

Attached Files
Elite Membership required to download: VWBands.zip
Reply With Quote
  #13 (permalink)
 
Fat Tails's Avatar
 Fat Tails 
Berlin, Europe
Market Wizard
 
Experience: Advanced
Platform: NinjaTrader, MultiCharts
Broker: Interactive Brokers
Trading: Keyboard
Posts: 9,888 since Mar 2010
Thanks Given: 4,242
Thanks Received: 27,102



ElChacal View Post
Well, here's an indicator I made with Volume Weighted Std Dev bands and uses VWMA / VWAP as Middle band options.

I briefly backtested it and the results were not significantly better than standard Bollinger. Will keep digging.


My volume-weighted standard deviation bands look definitely different from yours.

What I meant is to use an algorithm that takes into account contract value, when calculating the standard deviation (blue bands).

You have applied a magic volume formula to the non-volume-weighted standard deviation, which is leads to a different result (orange bands).

The idea is to calculate the standard deviation of the underlying price volume distribution by using all information available through the chart.



Started this thread Reply With Quote
Thanked by:
  #14 (permalink)
 
ElChacal's Avatar
 ElChacal 
Houston, TX
 
Experience: Intermediate
Platform: NinjaTrader TWS Barchart
Broker: IB / IB
Trading: SPY, QQQ
Posts: 414 since Nov 2014
Thanks Given: 471
Thanks Received: 278

Oh I see... Right, I basically smoothed out the bands, I didn't find much reason behind that either.

Reply With Quote
  #15 (permalink)
 
gregid's Avatar
 gregid 
Wrocław, Poland
 
Experience: Intermediate
Platform: NinjaTrader, Racket
Trading: Ockham's razor
Posts: 650 since Aug 2009
Thanks Given: 320
Thanks Received: 623

@ElChacal, here is an example of Volume Weighted Standard Deviation - haven't tested it thoroughly as I've just written it inspired by @Fat Tails last post. Feel free to apply it to your bands.

Green in the picture is Volume Weighted, yellow is original Standard Deviation:


EDIT: I've replaced the file with a cleaner version with no for loop.

Attached Files
Elite Membership required to download: VWStdDev.zip
Reply With Quote
  #16 (permalink)
 
ElChacal's Avatar
 ElChacal 
Houston, TX
 
Experience: Intermediate
Platform: NinjaTrader TWS Barchart
Broker: IB / IB
Trading: SPY, QQQ
Posts: 414 since Nov 2014
Thanks Given: 471
Thanks Received: 278


shodson View Post
Counter-trend trading is not necessarily the same as mean reversion trading, at least not for me. Much of my trading is done by buying pullbacks in a longer-term up-trends or selling rallies in longer-term down-trends, so I'm counter a short-term move that is contrary to the longer-term trend. Exits are at an established mean. This works quite well in trending and sideways markets, but when the longer-term trend changes or the pull-back is deep, it can be painful. Over time though this has worked very well for me.

I agree that any strategy should have some "trend filter", pure counter-trend is a killing tomato.

@shodson what indicators do you use? channels, patterns, oscillators?

Reply With Quote
  #17 (permalink)
 
Fat Tails's Avatar
 Fat Tails 
Berlin, Europe
Market Wizard
 
Experience: Advanced
Platform: NinjaTrader, MultiCharts
Broker: Interactive Brokers
Trading: Keyboard
Posts: 9,888 since Mar 2010
Thanks Given: 4,242
Thanks Received: 27,102


gregid View Post
@ElChacal, here is an example of Volume Weighted Standard Deviation - haven't tested it thoroughly as I've just written it inspired by @Fat Tails last post. Feel free to apply it to your bands.

Green in the picture is Volume Weighted, yellow is original Standard Deviation:


EDIT: I've replaced the file with a cleaner version with no for loop.

That comes close to the standard deviation that I use.

In addition to the weighting I have modelled each bar from 6 data points (open, high, low,close, mean, body mean). Also it is possible to replace the summing up with a faster recursive algorithm.

The chart below shows the comparison, the green one is yours, the red one is my version of the volume-weighted standard deviation.


Started this thread Reply With Quote
Thanked by:
  #18 (permalink)
 
gregid's Avatar
 gregid 
Wrocław, Poland
 
Experience: Intermediate
Platform: NinjaTrader, Racket
Trading: Ockham's razor
Posts: 650 since Aug 2009
Thanks Given: 320
Thanks Received: 623

@Fat Tails,

I tweaked the code a bit to implement the 6 point data input value in the simplest way I could think of - the results resemble your version much more than my initial version. I like the smoothness of the plot.

(Red - 6 points data input, Green my original submission):

Attached Files
Elite Membership required to download: VWStdDevExperiment.zip
Reply With Quote
Thanked by:
  #19 (permalink)
 
Scalpingtrader's Avatar
 Scalpingtrader 
Hanover, Germany
Legendary Amateur Trader
 
Experience: Beginner
Platform: NinjaTrader
Trading: ES
Posts: 1,945 since Apr 2014
Thanks Given: 3,144
Thanks Received: 5,147

Sorry for off-topic but while reading your screen name I thought to myself:
"gregid. Sounds like grexit. Now THAT one would be a "mean" reversion..."





gregid View Post
@Fat Tails,

I tweaked the code a bit to implement the 6 point data input value in the simplest way I could think of - the results resemble your version much more than my initial version. I like the smoothness of the plot.

(Red - 6 points data input, Green my original submission):


Reply With Quote
Thanked by:
  #20 (permalink)
 
gregid's Avatar
 gregid 
Wrocław, Poland
 
Experience: Intermediate
Platform: NinjaTrader, Racket
Trading: Ockham's razor
Posts: 650 since Aug 2009
Thanks Given: 320
Thanks Received: 623



Scalpingtrader View Post
Sorry for off-topic but while reading your screen name I thought to myself:
"gregid. Sounds like grexit. Now THAT one would be a "mean" reversion..."


No matter how mean that would be I would rather go momentum in such case

Reply With Quote
Thanked by:




Last Updated on February 8, 2019


© 2024 NexusFi™, s.a., All Rights Reserved.
Av Ricardo J. Alfaro, Century Tower, Panama City, Panama, Ph: +507 833-9432 (Panama and Intl), +1 888-312-3001 (USA and Canada)
All information is for educational use only and is not investment advice. There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
About Us - Contact Us - Site Rules, Acceptable Use, and Terms and Conditions - Privacy Policy - Downloads - Top
no new posts