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Mean reversion works, but can you stand the pain?
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Created: by Fat Tails Attachments:7

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Mean reversion works, but can you stand the pain?

  #11 (permalink)
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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.

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  #12 (permalink)
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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.

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  #13 (permalink)
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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.


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

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  #15 (permalink)
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Volume Weighted Standard Deviation

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

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Last edited by gregid; April 17th, 2015 at 10:25 AM. Reason: Added cleaner version of indicator (no for loop)
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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?

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  #17 (permalink)
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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:
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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.

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@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):
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  #19 (permalink)
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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):
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  #20 (permalink)
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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

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