Mean Reversion Trade

 

The meaning of the word "Mean Reversion Trade" is "Return to Average Trade"; It is a trading strategy made knowing that when the prices of financial instruments move away from the moving averages in the positive or negative direction, they will move back to the moving averages. The price moves in a spiral around the moving averages. Accordingly, investors and traders using the "Mean Reversion Trade Strategy"; When the price moves away from the moving averages, they open positions in the direction of the average. Also; They see the spiral movement of the price movement around the averages in the frame of trend channel or horizontal channel movement. The moving average type used in the return-to-average strategy is mostly Simple Moving Average, with a period of 50. Some traders also use 100 and 200 as period.

A return to average trade is also made by drawing a regression trend channel, apart from the moving averages indicator. The regression trend channel drawing tool is available in the drawing tools menu on the technical analysis page. In the regression trend channel drawn using this tool, the regression line passes right in the middle of the channel. Price moves with standard deviations above and below this middle line. Investors and traders construct their trading strategies by drawing this regression trend channel. Both the regression trend channel and the moving averages (SMA(50)) can also be used at the same time.

There is actually only one simple logic in the "Mean Reversion Trade Strategy". If the price is below the averages or below the regression line in the middle of the regression trend channel, the price of the relevant instrument is cheap and can be invested in the long direction. Completely reverse; If the price is below the averages and the regression trendline, the price is expensive and can be traded short.