Volatility-Normalized Mean Reversion with a Signed Energy Threshold

Summary

The strategy converts price displacement from a rolling simple moving average into a volatility-normalized score, using standard deviation as the scale. It squares the displacement and preserves its sign to create a nonlinear energy measure: large moves away from the baseline produce larger readings than small fluctuations. When that measure falls below a negative threshold, the system enters long; it exits when the measure returns to zero or above. A configurable timeframe supplies the price series, and a session toggle can limit orders to regular US market hours.

The document describes the formula and implementation choices, including confirmed higher-timeframe data and gap handling. It does not provide actual tester statistics or independently verifiable evidence that the approach has an edge. The trading rule is long-only, and its exit depends on the session filter, so a position may remain open outside the allowed window. Its physical oscillator analogy motivates the score but does not validate predictive performance.

Key ideas

• The method measures price distance from a rolling average in standard-deviation units.
• Squaring the normalized distance makes the score respond nonlinearly to larger deviations while retaining direction.
• A sufficiently negative score triggers a long entry, and a return to zero or positive territory triggers an exit.
• Higher-timeframe inputs and a US session filter are optional operational controls.
• The document supplies no performance statistics to substantiate its claims of strategy effectiveness.

Tags

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