Using Recent Trade Curves to Filter Mean-Reversion Signals
Summary
This indicator evaluates simple one-candle mean-reversion trades by tracking separate rolling equity curves for long and short setups. A long trade is simulated after a down candle and a short trade after an up candle; each is closed one candle later. The indicator sums the latest 20 simulated outcomes on each side and plots weighted averages to help compare recent results.
The author proposes using the curves as a market-condition filter: a positive or rising long curve, or one above its average and the short curve, suggests recent dip buying has been relatively favorable. The short curve is interpreted symmetrically, and a crossover between the two may hint at a change in market direction. The document recommends longer chart intervals, including daily or weekly, for an overall directional view. These are heuristic readings rather than validated forecasts; the rolling sample can lag, and the one-candle model omits transaction costs, execution details, and other trading constraints.
Key ideas
- The indicator tracks separate rolling results for simulated long-after-down and short-after-up trades.
- Each simulated position lasts one candle, and the curves aggregate the most recent 20 trades.
- Weighted averages and comparisons between the curves are offered as filters for recent relative performance.
- The author favors longer time frames and warns that the rolling indicator lags market changes.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.