How To Use Forex Mean Reversion Indicator In Intraday Trading?
An introduction to forex mean reversion indicator
Many traders, even these with expertise use systems in line with at the least probably the most Prime 5 warning signs which fall into one among two classes; “Leading” or Lagging:
Moving Avarage – A Lagging indicator
Stochastic – A “Major” indicator
MACD – A Lagging indicator
RSI – A “Major” indicator
Bollinger Bands – A Lagging indicator
“Top” symptoms are inappropriately named as a result of none of them lead with any type of reliability. If this used to be no longer proper then all traders would merely Buy an Oversold market and Sell it when it used to be Overbought, and vice versa. Methods in keeping with “Major” indications don’t work for one easy cause – None of them lead with any type of reliability.
Lagging indications and systems in line with them are ineffective as a result of, because the identify suggests – They lag.
The Foreign exchange Imply Reversion Device is in line with the Foreign exchange Imply Reversion Indicator – It’s neither a “Top” or a Lagging indicator – It’s a actual-time indicator that’s in accordance with a elementary truth. It gives a real indication of when a market is Overbought/Oversold – On ALL contraptions throughout ALL time-frames.
Forex mean reversion – FACT: Prices will fluctuate from a mean (price) to different Highs and Lows and will always revert to a mean (price) at some stage in the future. Below is a list of popular definitions for Mean Reversion, including their sources:
A theory suggesting that prices and returns eventually move back towards the mean or average – Investopedia.
The essence of the concept is the assumption that both a stock’s high and low prices are temporary and that a stock’s price will tend to move to the average price over time – Wikipedia.
The theory that a given value will continue to return to an average value over time, despite fluctuations above and below the average value – Investor Words.
Unlike no other indicator, the Forex Mean Reversion (FMR) Indicator is a real-time indicator based on a fundamental fact. It calculates and displays a Mean (price) based on the Mean level (a Simple Moving Average) setting.
It then calculates and displays two levels either side of the Mean – These levels are based on percentage movements derived from the current Average True Range (ATR) reading.
Level 1 is a suggested Entry level (where a reversion to the mean is expected) and Level 2 is a suggested Stop level (where historically, prices rarely, if ever, extend to).
Both levels, as well as the Mean level setting, are user defined and are adjusted the same way as settings for other Technical indicators.
Forex Mean Reversion – Trading System And Indicator
The FMR product can be used as a trading system in its own right or as an indicator to compliment existing strategies. This is why they provides:
The FMR template and
The FMR indicator
Those wishing to use the Forex Mean Reversion System simply load the template onto the charts they wish to trade and adjust the indicator to suit their trading style. Alternatively, the indicator can be added to any existing chart and again adjusted as required.
Suggested levels for selected instruments and time-frames are provided in the manual, however the main benefit of the indicator is its flexibility. Users are able to use and adjust these levels or identify their own, for ALL instruments on ALL time-frames. We are using the forex mean reversion system even on India’s Nifty index.
2017 Update: ForexMeanReversion.com website has closed down.
Indrajit is a professional blogger and Trading System developer, Amibroker expert, Wordpress expert, SEO expert and Stock market analyst. Trading since 2000, he has started the journey of StockManiacs.net on 2008. He follows Indian and world stock markets closely.