Strategies · Library · Stocks
§3.14Mean reversion
Support and resistance
Compute a pivot level from yesterday's high, low and close, with a resistance above and a support below it. Go long above the pivot and exit near resistance; go short below the pivot and exit near support.
- Asset class
- Stocks
- Held for
- Days
- Data
- ARCANE has part of the data
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Today's price against a pivot, resistance and support derived from the previous day's high, low and close.
- Entry and exit
- Enter on crossing the pivot; exit at resistance or support; daily.
- Sizing
- One position per stock.
How it fails
- Levels are arbitrary
- Needs intraday execution
- Short leg needed
Data it needs
- daily high, low and close
- intraday price for entries
ARCANE has daily closes; highs and lows are not in its set and the signal wants current-day prices.
How ARCANE uses it
Little use for Calls; at most a rough price-level line in an Alpha answer.
Needs daily highs and lows and intraday price compared with them, plus shorts.
Filed under the mean reversion card
Buy last week’s biggest losers and sell last week’s biggest winners, betting that short, sharp moves partly undo themselves.
A paper plan from this card holds 1 to 10 days, stops at 1× the expected move and uses at most 50% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §3.14, p. 52 of the SSRN version. Described in our words. Mean reversion is ARCANE’s filing, not the book’s.