Robust Median and MAD Mean Reversion with Reentry Confirmation

Summary

This teaching strategy measures price deviation from a recent regime using the median of past log closes and the median absolute deviation (MAD) as a robust scale. Instead of entering as soon as price reaches an extreme, it records the event and waits for deviation to shrink over consecutive completed bars and return inside a confirmation threshold. A downside excursion followed by reentry prompts a long; an upside excursion prompts a short. The entry also depends on limited movement in the reference center and enough target distance to cover estimated trading costs.

At entry, the strategy freezes the center as its target. It exits on convergence, renewed deviation, excessive center drift, a holding-time limit, or a fixed stop. The document reports syntax and offline logic checks for the statistics and state transitions, but no platform backtest, paper trading, or live validation. It warns that persistent trends, structural changes, liquidity constraints, fees, and slippage can defeat reversion, and that parameters require instrument- and timeframe-specific validation.

Key ideas

• The strategy uses a rolling median of log prices and MAD to estimate a robust center and dispersion.
• An extreme deviation arms a setup; entry waits for repeated contraction and reentry within a confirmation threshold.
• The target center is fixed at entry to prevent a moving reference from masking a persistent trend.
• Exit conditions include convergence, invalidation, center drift, a time limit, and a fixed stop.
• Offline checks are reported, but no backtest or live validation is provided.

Tags

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