⚡️Mean Reversion VS Trend Following
Trend following and mean reversion both are two great trading forms & you really cannot say that one is better than other.
It all depends on the type of strategy & market you’re trading & personal preferences.
#squareoffthreads🧵👇
1/10
Trend following and mean reversion both are two great trading forms & you really cannot say that one is better than other.
It all depends on the type of strategy & market you’re trading & personal preferences.
#squareoffthreads🧵👇
1/10
What Is Mean Reversion?
Mean reversion is when a market tends to swing around its mean.
When a market has moved too much to the upside, we say it’s overbought.
The goal in mean reversion trading is to identify when a market has entered oversold or overbought territory.
2/10
Mean reversion is when a market tends to swing around its mean.
When a market has moved too much to the upside, we say it’s overbought.
The goal in mean reversion trading is to identify when a market has entered oversold or overbought territory.
2/10
General Characteristics of Mean Reversion Strategies
Mean reversion strategies tend to have quite a high win rate.
The fact that winners are quite many, has the effect that mean reversion strategies have quite small winners and a few big losers.
3/10
Mean reversion strategies tend to have quite a high win rate.
The fact that winners are quite many, has the effect that mean reversion strategies have quite small winners and a few big losers.
3/10
Advantages of Mean Reversion Strategies
1. They have a short holding period.
2. They tend to work in volatile market conditions.
3. The high winning percentage may make it easier to pull the trigger.
Mean reversion is a great trading form that suits many traders!
4/10
1. They have a short holding period.
2. They tend to work in volatile market conditions.
3. The high winning percentage may make it easier to pull the trigger.
Mean reversion is a great trading form that suits many traders!
4/10
Disadvantages of Mean Reversion Strategies
Since mean reversion strategies require a big stop loss for you not to be stopped out too early, you will have to keep your position size smaller.
Since a small position size also means that you’ll make less money on each trade.
5/10
Since mean reversion strategies require a big stop loss for you not to be stopped out too early, you will have to keep your position size smaller.
Since a small position size also means that you’ll make less money on each trade.
5/10
What Is Trend Following?
Trend following, on the other hand, relies on the very opposite tendency to that of mean reversion.
Instead of assuming that the market has become oversold/overbought, we enter in the direction of the strength and momentum.
6/10
Trend following, on the other hand, relies on the very opposite tendency to that of mean reversion.
Instead of assuming that the market has become oversold/overbought, we enter in the direction of the strength and momentum.
6/10
Characteristic of trend following strategies
Trend following strategies tend to have few but big winners.
It can be a hard trading form to execute, as it gives long losing streaks.
You shouldn't miss a trade, it might be that one trade which will turn the tables profit.
7/10
Trend following strategies tend to have few but big winners.
It can be a hard trading form to execute, as it gives long losing streaks.
You shouldn't miss a trade, it might be that one trade which will turn the tables profit.
7/10
Advantages of trend following strategies
Since you’re attempting to ride the large swings in a market, your entries don’t need to be that exact.
The most important thing is to catch the bulk of the big trends, which will pay for all the trades that don’t go that well.
8/10
Since you’re attempting to ride the large swings in a market, your entries don’t need to be that exact.
The most important thing is to catch the bulk of the big trends, which will pay for all the trades that don’t go that well.
8/10
Disadvantages of trend following strategies:
The low hit-rate, which may be as low as 20%, means that trend following can be hard to follow at times.
You should never miss a trade! Since most of profits comes from a very small portion of all the trades you execute.
9/10
The low hit-rate, which may be as low as 20%, means that trend following can be hard to follow at times.
You should never miss a trade! Since most of profits comes from a very small portion of all the trades you execute.
9/10
Mean Reversion VS Trend Following – Which is Best?
It depends on you.
It all boils down to what type of trading suits your personality.
Combine both!
By combining two trading styles that different, benefits in terms of diversification and risk control.
10/10
It depends on you.
It all boils down to what type of trading suits your personality.
Combine both!
By combining two trading styles that different, benefits in terms of diversification and risk control.
10/10
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