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Mean Reversion
Infographic
It can be assumed that
Price will always return (revert) to the Mean (Moving average)
MEAN
REVERSION CHARACTERISTICS
Price reverts
to the Mean, cuts through it, and rises above it
- Price then once again, reverts to the Mean, cuts
through it, and…
Falls below it!
Mean
Reversion applies to…
- All Time-frames
- All Moving averages
- All Currency pairs (and most other instruments*)
The higher the Time-frame
the longer it will take Price to extend from and revert back to the Mean
(Moving average)
The longer (in value) the
Moving average (Mean), the more Price will be able to extend away from the Mean
and thus the longer it will take for Price to revert back to the Mean
Mean reversion applies to
ALL Moving averages on ALL Time-frames for ALL Currency pairs and most other
instruments*
* Stocks – If a company goes bust and the value of that Stock reduces to 0 – Mean reversion cannot occur
Mean
reversion (which will always occur*) becomes more likely the further Price
extends away from the Mean
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