Hedging as described above is not part of the strategy. Above comments are to illustrate other attempts at isolate variables to try and trade, besides skew.

A Simple Mean Reversion Strategy

I know a lot of folks are tired of hearing me harp about option theory as it relates to dynamic hedging, but it’s really an amazing example of isolating a variable to trade that isn’t skew. it’s also the core inspiration for this method. Instead of ...

A Simple Mean Reversion Strategy

Thanks for clarifying! Very cool stuff. something I think to be careful of, is not getting back into the habit of trying to forecast directionality of price. as soon as you do this, you are back to betting on skew more than anything. And if you add ...

A Simple Mean Reversion Strategy

I am a little confused what exactly the bands are showing if you don’t mind clarifying. Is it saying at this point (a close price and the bands at this index), the MA will meet somewhere in the bands range within 200 candles approximately 68% of the ...

A Simple Mean Reversion Strategy

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A Simple Mean Reversion Strategy

Yeah, so this is an instance where you'd almost certainly end up with a net loser across all the positions for this move, whether you rolled or not. This large of a move is a <3% (probably even a less than 1%) of the time move, and these are the ...

A Simple Mean Reversion Strategy

The risk may not be as tolerable for others but I find it to be fine/easy to deal with. Also if you understand risk/reward and probabilities it should be fairly obvious that if your win rate is above 50%, your drawdowns will almost always be larger ...

A Simple Mean Reversion Strategy

There were 36 total trades (unique orders/entries) for the month as shown in the last pic. I would definitely be defending positions a lot harder if DD was approaching 15%-20%. Something to understand is DD will always be pretty large relative to ...

A Simple Mean Reversion Strategy

Here are my results for August with this strategy, The Month started slow but ended well Many will turn their nose up at 4% (which is a lower monthly return than usual) but 1.04^12 = 60% annualized. So I'll take 4% from stress-free, low-intensity ...

A Simple Mean Reversion Strategy

If this is the case, you have been way too aggressive trading the 200MA. You should really only be rolling to the 800 if you are caught in a really large move (the kind that occurs <5% of the time for any sample), which would essentially guarantee ...

A Simple Mean Reversion Strategy

the difference is I don’t need to add more risk in order to get out at break even. if I tried to size up so I would be BE at the 200MA, I would need to add a very large position to increase the probability of getting to BE or better. If it continued ...

A Simple Mean Reversion Strategy

Rolling The Trade: One of the Risk Management Tools in Our Kit One thing very common in the world of options trading is this idea of "rolling" your trade. You can either roll your trade by changing its strike, duration, or both. And the purpose of ...

A Simple Mean Reversion Strategy

This is a great suggestion and one I totally agree with. A lot of times it can be beneficial to manage the trade early. BBs are one way to do it, another way is at some percentage of the potential profit (50% is usually a good starting point for ...

A Simple Mean Reversion Strategy

Yeah, I was thinking about this more last night, and this would essentially just be creating a synthetic pair to pairs trade. In this case, the model error you'd need to watch for is the cointegration coefficient as this is what you are trying to ...

A Simple Mean Reversion Strategy

ahh I see! Thank you for clarifying this.

A Simple Mean Reversion Strategy

I think this method is a great way to start the weighting approach. Regarding the previous post mentioned AUD/USD, EUR/JPY, GBP/NZD as baskets, the challenge in this is assuming direction for each. There will be many instances where you can't be ...

A Simple Mean Reversion Strategy

Another thought on how to optimize this, when exploring ideas, don't let perfection be the enemy of good. Will likely be impossible to maintain a completely delta-neutral position but even a 10%-25% reduction in portfolio volatility would be ...

A Simple Mean Reversion Strategy

I really like the idea of this approach of using multiple pairs to create essentially a “delta neutral” portfolio so there is minimal to no directional exposure on any one currency. This way, you are removing that volatility from your portfolio ...

A Simple Mean Reversion Strategy

I’ll add to this as well, It’s not just price movements, it’s just built into any kind of process that has unique outcomes that are equally likely to occur. The more possible outcomes there are, the more unique pairs of outcomes there are (different ...

A Simple Mean Reversion Strategy

to add to this, you don’t need a special indicator to see the candles. You can see them visually with just regular candles and a 200 MA, the custom candles are just the same data compressed into 4 data points per opportunity. the purpose of them is ...

A Simple Mean Reversion Strategy