Short-Term Mean Reversion Using a Moving-Average Dip Signal

Summary

This simple long-only strategy aims to buy a short-term price dip and capture a possible rebound. It subtracts a multiple of 20-bar ATR from the low, smooths that adjusted series with a simple moving average, and enters when the market low crosses below the smoothed line. The listed defaults are a dip multiple of 2 and smoothing length of 10. The position is closed when the same entry condition recurs 20 bars later, making the holding period rule-based rather than dependent on a price target.

The accompanying explanation frames the signal as a possible reversal near moving-average support, while acknowledging that price may keep falling and repeated signals can incur losses and costs. It proposes adding trend filters, revising the exit, and testing parameters across markets and timeframes. No instrument, backtest results, transaction-cost assumptions, or evidence of profitability are given. The description also calls the exit a stop, but the code closes after a fixed bar delay; it does not specify a price-based protective stop.

Key ideas

• The entry occurs when the low crosses below a smoothed series formed from the low adjusted by an ATR multiple.
• The defaults use a 20-bar ATR, a dip multiple of 2, and a smoothing length of 10.
• The strategy closes the long position after 20 bars following a new entry signal.
• The setup seeks rebounds but can lose if prices continue downward after the signal.
• No backtest evidence or trading-cost assumptions are provided.

Tags

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