Return Dispersion Quadrants for Trend and Mean-Reversion Regimes

Summary

This strategy classifies recent returns by pairing each bar's return with the prior bar's return. It counts observations in four sign-based quadrants and selects the most common quadrant as a rough market regime. A dominant quadrant with two positive returns enables a trend-following setup; a negative prior return followed by a nonnegative return enables a mean-reversion setup; the other two quadrants disable trading. The visible entry rules then use a price-versus-moving-average condition for trend trades and an RSI threshold crossing for mean reversion.

The script also sets cash-based position amounts and defines take-profit and stop levels for its entries, but the supplied excerpt cuts off before the full mean-reversion logic and later handling can be reviewed. It includes commission and slippage assumptions, yet provides no reported backtest results or interpretation of the quadrant method's predictive value. The selected lookback size, asset, timeframe, and parameters may materially affect classifications; the document offers no robustness analysis.

Key ideas

• The method bins pairs of consecutive returns into four sign-based quadrants.
• The most frequent quadrant determines whether trend following, mean reversion, or no trading is selected.
• Trend entries require an up move and price above a moving average.
• Mean-reversion entries use an RSI threshold crossing when the relevant quadrant dominates.
• The excerpt does not provide complete strategy logic or performance evidence.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.