Standard Deviation Bands for Mean Reversion Trading

Summary

This mean reversion system builds a dynamic price range from a simple moving average and the standard deviation of closing prices. With the stated default settings, the center line uses 30 periods and the bands sit two standard deviations above and below it. A close at or below the lower band opens a long position; a close at or above the upper band opens a short position. Positions are closed when price crosses the moving average in the direction of reversion.

The document explains that the range widens or narrows with measured volatility and describes risks including persistent trends, frequent signals and trading costs, false breaks, lagging calculations, and sensitivity to parameter choices. It proposes trend and volume filters, adaptive band widths, alternative stops, time filters, longer timeframe checks, and machine learning as possible extensions. A BTC/USDT futures backtest configuration for June 2024 is provided, but no results are reported. The rules therefore describe a testable framework rather than evidence of profitability.

Key ideas

• The system centers a trading range on a 30-period simple moving average and uses standard deviation to set its boundaries.
• It opens long at or below the lower band and short at or above the upper band.
• Positions close when price crosses the moving average back toward the center.
• Volatility changes affect band width, while strong trends can prolong adverse moves.
• The document proposes filters and alternative stops but reports no backtest performance.

Tags

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