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Thread: Forex market mean reversion

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    Default Forex market mean reversion

    Hi all



    Mean reversion introduction :


    Mean reversion is the heart of all market movement. Prices are either traveling away from the mean, or snapping back toward the mean. We have low trending volatility and high trending volatility. High trending volatility will see a market move substantially in one direction before a retracement occurs. Low trending volatility will see a minor fluctuation around the mean. (choppy trend movement or minor slope). It is a well known fact that all trends, will retrace at some future point, even if it takes days, weeks or years, the mean (moving average) will be tested. If we apply this logic to short timeframes, we can make money. In summary, prices are always moving back to a central point from an outer extreme and prices are always moving away from central point to an outer extreme. This is the basic understanding of all quantitative models in finance. (see image)


    Some points you need to know:
    The mean acts as a dynamic trend line (value points). Broader term price trends move in line with the longer term moving average direction. This is why counter trends fail so often . We must try to avoid trading counter trend reactions. Put simpler, we aim to sell strength in falling markets, and buy weakness in rising markets. OR Trade only from Price Extremes (support or resistance), where we expect prices to headback towards the Mean.


    Mean reversion illustration :



    Markets have to move down to move up and move up to move down.

    Price rotation, trading ranges, and trends, all carry the one simple law.

    – I.e.: Prices have to move up to move down, and down to move up.
    Knowing this, we can now understand why prices rotate the way they do. As well as why so many break outs are “faded” or used as opportunity to take a trade in the opposite direction.

    How often do you see a textbook break out pattern fail? How often do you see a forex pair make a new recent high or low and then snap back in the opposite direction?

    This is the forex market . . The trading game is designed to trap you, to trick you, and to test your nerve. If trading was easy, we would all be rich, this is why the simple textbook strategies don’t work, and the simple minded traders who can’t adapt to new ideas fail over and over.





    forex-market-move-down

    Forex markets tend to be contrarian , thus why false breaks create opportunity over and over. As I said , markets have to do this to move.





    Trend summary :

    We will never know when a new trend starts or finishes, we wait for its origination and then trade within it.
    The first and second retracement are always important after a new trend.
    On an hourly chart, the best short term value areas are the 150 EMA and 365EMA. When the slope of the 150 EMA
    is in clearly in one direction and not flat, the trend has a good chance of being respected and this level will often be resistance.

    Diverging moving averages signal a trend as well as momentum bias. Key moving averages often align with retracement levels and horizontal support or resistance. When combined, they are powerful, We call this confluence of dynamic resistance.

    Trend setups are prone to “whipsaws”, meaning not all will result in profit. Some setups will simply die quickly as the market moves straight through the moving averages. You will never know when and where this happens, it just does!
    If following a trend, we can avoid being caught on bad trades by looking around the charts and confirming direction with other influences. Back up your views with Swing points, Trend line breaks, support or resistance breaks, price action signals, etc etc.


    The market makes highs and lows , forming swing points. These are short term reference levels and don’t need to be confirmed. E.g., if the market moves down and bounces at point x, that will leave a support swing point. If the market then moves back down and fails point x, point x will become a resistance swing point Overall, the trend is your friend. When combined with price action, and being counter intuitive, the greatest position traders of all time, use counter trend moves to enter the market in the direction of the broader swing.


    Retracements E.g.: 55% and 61.5% retracement are often good to trade short term trend swings.
    We do however note that retracement trading is another art form in itself, that’s not something I want to Include in this course in detail.



    Thank you.

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    Resolve (08-05-2015)

  3. #2
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    Default

    Quote Originally Posted by Kinglord View Post
    Hi all



    Mean reversion introduction :


    Mean reversion is the heart of all market movement. Prices are either traveling away from the mean, or snapping back toward the mean. We have low trending volatility and high trending volatility. High trending volatility will see a market move substantially in one direction before a retracement occurs. Low trending volatility will see a minor fluctuation around the mean. (choppy trend movement or minor slope). It is a well known fact that all trends, will retrace at some future point, even if it takes days, weeks or years, the mean (moving average) will be tested. If we apply this logic to short timeframes, we can make money. In summary, prices are always moving back to a central point from an outer extreme and prices are always moving away from central point to an outer extreme. This is the basic understanding of all quantitative models in finance. (see image)


    Some points you need to know:
    The mean acts as a dynamic trend line (value points). Broader term price trends move in line with the longer term moving average direction. This is why counter trends fail so often . We must try to avoid trading counter trend reactions. Put simpler, we aim to sell strength in falling markets, and buy weakness in rising markets. OR Trade only from Price Extremes (support or resistance), where we expect prices to headback towards the Mean.


    Mean reversion illustration :



    Markets have to move down to move up and move up to move down.

    Price rotation, trading ranges, and trends, all carry the one simple law.

    – I.e.: Prices have to move up to move down, and down to move up.
    Knowing this, we can now understand why prices rotate the way they do. As well as why so many break outs are “faded” or used as opportunity to take a trade in the opposite direction.

    How often do you see a textbook break out pattern fail? How often do you see a forex pair make a new recent high or low and then snap back in the opposite direction?

    This is the forex market . . The trading game is designed to trap you, to trick you, and to test your nerve. If trading was easy, we would all be rich, this is why the simple textbook strategies don’t work, and the simple minded traders who can’t adapt to new ideas fail over and over.





    forex-market-move-down

    Forex markets tend to be contrarian , thus why false breaks create opportunity over and over. As I said , markets have to do this to move.





    Trend summary :

    We will never know when a new trend starts or finishes, we wait for its origination and then trade within it.
    The first and second retracement are always important after a new trend.
    On an hourly chart, the best short term value areas are the 150 EMA and 365EMA. When the slope of the 150 EMA
    is in clearly in one direction and not flat, the trend has a good chance of being respected and this level will often be resistance.

    Diverging moving averages signal a trend as well as momentum bias. Key moving averages often align with retracement levels and horizontal support or resistance. When combined, they are powerful, We call this confluence of dynamic resistance.

    Trend setups are prone to “whipsaws”, meaning not all will result in profit. Some setups will simply die quickly as the market moves straight through the moving averages. You will never know when and where this happens, it just does!
    If following a trend, we can avoid being caught on bad trades by looking around the charts and confirming direction with other influences. Back up your views with Swing points, Trend line breaks, support or resistance breaks, price action signals, etc etc.


    The market makes highs and lows , forming swing points. These are short term reference levels and don’t need to be confirmed. E.g., if the market moves down and bounces at point x, that will leave a support swing point. If the market then moves back down and fails point x, point x will become a resistance swing point Overall, the trend is your friend. When combined with price action, and being counter intuitive, the greatest position traders of all time, use counter trend moves to enter the market in the direction of the broader swing.


    Retracements E.g.: 55% and 61.5% retracement are often good to trade short term trend swings.
    We do however note that retracement trading is another art form in itself, that’s not something I want to Include in this course in detail.



    Thank you.

    Haan bhai maine dekha hai ye wala Forex market mean reversion system to muje accha lag raha hai. Ab main jab tak is ko Demo trading accounts me test nahi kar leta hu tab tak main kuch bhi nahi bata sakta hu iske bare mein

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    Default

    Quote Originally Posted by Resolve View Post
    Haan bhai maine dekha hai ye wala Forex market mean reversion system to muje accha lag raha hai. Ab main jab tak is ko Demo trading accounts me test nahi kar leta hu tab tak main kuch bhi nahi bata sakta hu iske bare mein
    bhai shayad ye breakout ka system hai, support aur resistance trading hai, jismein sirf moving average indicator ka istemaal kiya gaya hai ek tarah shayad price action trading hai bhai.

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    Quote Originally Posted by Kinglord View Post
    bhai shayad ye breakout ka system hai, support aur resistance trading hai, jismein sirf moving average indicator ka istemaal kiya gaya hai ek tarah shayad price action trading hai bhai.
    Jab tak hame ye baat pata nahi chal jaati hai ki kis Support level ka istemaal karne ke baad me hame trades karna hai tab tak trading karna hamare liye jyada profitable nahi ho sakta hai

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    Mere hisaab se ye price action type ki trading hai, maine kabhi bhi price action trading kari nahi hai, lekin agar ye effective hai, to jarur iske sath trading karna chahiye.

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    Default

    Quote Originally Posted by Kinglord View Post
    Mere hisaab se ye price action type ki trading hai, maine kabhi bhi price action trading kari nahi hai, lekin agar ye effective hai, to jarur iske sath trading karna chahiye.
    Jin traders logon ko pata hota hai ki kis tarah se Price Action ki madad se apni trades ko karna hai wo log is baat ko bhi ekdum acchi tarah se samajh jaate hain ki trading me profits kamana hi main hota hai

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    Quote Originally Posted by Resolve View Post
    Jin traders logon ko pata hota hai ki kis tarah se Price Action ki madad se apni trades ko karna hai wo log is baat ko bhi ekdum acchi tarah se samajh jaate hain ki trading me profits kamana hi main hota hai
    Bhai price action trading bahut hi achi hoti hai, humko samjhana hota hai bhai price action trading ko, tabhi iske sath mein trading kar sakte hai bhai.

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    Quote Originally Posted by Kinglord View Post
    Bhai price action trading bahut hi achi hoti hai, humko samjhana hota hai bhai price action trading ko, tabhi iske sath mein trading kar sakte hai bhai.
    Agar ham log apni trades me Price action ka istemaal karne lag jaate hain tab is tarah ki trades k karna easy ho jayega aur hame high income mil jaati hai

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    Quote Originally Posted by Resolve View Post
    Agar ham log apni trades me Price action ka istemaal karne lag jaate hain tab is tarah ki trades k karna easy ho jayega aur hame high income mil jaati hai
    Bhai price action ek badiya trading hoti hai aur main samjhata hoon humae ko trading mein acha profits earning ke liye price action use kiya jata hai.

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    Quote Originally Posted by Kinglord View Post
    Bhai price action ek badiya trading hoti hai aur main samjhata hoon humae ko trading mein acha profits earning ke liye price action use kiya jata hai.
    Haan bhai ye baat to ekdum sahi hai ki hame apni trading ko karne ke liye Price action ki poori tarah se knowledge lena hoti hai aur agar ham logon ke paas me is tarah ki knowledge hai tab trades ko karna easy hoga

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    Quote Originally Posted by Resolve View Post
    Haan bhai ye baat to ekdum sahi hai ki hame apni trading ko karne ke liye Price action ki poori tarah se knowledge lena hoti hai aur agar ham logon ke paas me is tarah ki knowledge hai tab trades ko karna easy hoga
    Haan bhai price action ka use hum logo ko kafi achi tarah se karna aana chahiye, price action trading ek dum badiya hoti hai isko samjhane mein mehnat jayda hai bhai.

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    Quote Originally Posted by Kinglord View Post
    Haan bhai price action ka use hum logo ko kafi achi tarah se karna aana chahiye, price action trading ek dum badiya hoti hai isko samjhane mein mehnat jayda hai bhai.
    Haan bhai hame is baat ka sahi tarah se pata hai ki trading me jo baat ham logon ke liye main hoti hai wo yehi hai ki kis tarah se hame isme hogh trading ke profits mil sakte hain

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    Quote Originally Posted by Resolve View Post
    Haan bhai hame is baat ka sahi tarah se pata hai ki trading me jo baat ham logon ke liye main hoti hai wo yehi hai ki kis tarah se hame isme hogh trading ke profits mil sakte hain
    Bhai forex market mein kafi cheeze hoti hai jo kafi jayda important hoti hai bhai, main to samjhata hoon bhai yaha par hum logo ko sabhi ka dheyan rakhna hota hai.

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    Quote Originally Posted by Kinglord View Post
    Bhai forex market mein kafi cheeze hoti hai jo kafi jayda important hoti hai bhai, main to samjhata hoon bhai yaha par hum logo ko sabhi ka dheyan rakhna hota hai.
    Forex trading ko karna ham logon ke liye aasan kaam nahi hoga aur isme hame kaafi mehnat ke saath me apni trading ko karna seekhna hoga tabhi ja kar ham logon ko isme success mil sakti hai

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    Quote Originally Posted by Resolve View Post
    Forex trading ko karna ham logon ke liye aasan kaam nahi hoga aur isme hame kaafi mehnat ke saath me apni trading ko karna seekhna hoga tabhi ja kar ham logon ko isme success mil sakti hai
    Haan bhai kaam karna asaani nahi hoti hai, kafi dikkat hoti hai, lekin bhai badiya kaam karne ke liye humare ko yaha par jayda achi mehnat karna hota hai.

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