The first step in building such a system is to define what mean reversion is. Mean reversion systems are looking for markets that are unusually high or low and will eventually return back to the mean. We want a system that looks at a particular market with a significant deviation from their average. Our previous research we did on opening range breakout systems already showed us that opening range breakouts define the trend for the rest of the day in about 30% of the time. Which means that out of 20 trading days we have 14 days of price patterns that are reverting back to the mean.
Trading is a tough business and coming up with the right idea for your trading strategy is sometimes a tedious task. It looks like a mountain you cannot climb. But don’t panic we are here to help. So today we talk about the futures market and how to do proper statistical analysis when trying to find your way to the promised land. Analyzing time series can be compared to the work of a butcher. There are some nice parallels here. Like a butcher who is cutting and processing the raw meat before he sells it you need to process the numbers and do your analysis. Bit by bit you are fragmenting the time series trying to find your edge.