Strategies · Library · Stocks
§3.15Mean reversion
Channel
Track the highest and lowest prices over a window as a channel. Buy when price touches the floor and sell or short at the ceiling, expecting a bounce. A break through the edge may instead mark a new trend.
Open in the builderAs a long-only proxy; see how ARCANE uses it.
- Asset class
- Stocks
- Held for
- Days
- Data
- ARCANE has the data
- Symphony
- Builds as a long-only proxy
The rule
- Signal
- Highest and lowest close over a lookback window versus the current price.
- Entry and exit
- Buy at the floor, exit or short at the ceiling; breakouts can flip to trend-following.
- Sizing
- One position per stock.
How it fails
- Breakouts run through the bounce idea
- Needs a range-bound market
- Volume confirmation missing
Data it needs
- daily prices
Daily closes suffice (the book also mentions volume as a confirmation).
How ARCANE uses it
A Call that a stock holds a range can cite floor and ceiling levels.
Builds as a long-only proxy. A Bollinger lower-band rule is a close cousin of buying near the floor; the exact channel and ceiling exit are not available.
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, §3.15, p. 53 of the SSRN version. Described in our words. Mean reversion is ARCANE’s filing, not the book’s.