Three-Standard-Deviation Bands for Mean-Reversion Entries

Summary

This strategy calculates a simple moving average and standard deviation over the same lookback, then places bands three standard deviations above and below the average. It treats a move below the lower band as an oversold condition and enters long when price crosses back above that band. A cross back below the upper band provides the sell signal, closing the long position. The parameters allow the lookback, price source, and deviation multiplier to be changed; the stated defaults are a 20-period lookback and a multiplier of three.

The method assumes extreme deviations will tend to revert toward the mean, but the document reports no results to support that assumption for its sample. Published settings use BTC/USDT futures over about a year with daily strategy bars and hourly base data. The notes caution that strong trends can keep prices outside the bands, while volatility spikes, parameter sensitivity, trading costs, and slippage can undermine results. Suggested extensions include trend filters, adaptive band widths, confirmation signals, position scaling, and stops; these are proposals rather than tested features.

Key ideas

• The bands are defined as a moving average plus or minus a multiple of standard deviation.
• A lower-band recovery triggers a long entry, while an upper-band retreat closes the position.
• The method relies on mean reversion and may struggle when a strong trend persists.
• The published BTC/USDT futures settings do not include reported performance results.
• Trend filters, adaptive thresholds, and explicit stop rules are suggested but not demonstrated.

Tags

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