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Meanreversion

How to Analyze the $SPY Daily ChartGreetings fellow traders, Welcome to this installment of our newsletter where we analyze price action on AMEX:SPY on the daily, hourly, and 15 minute timeframes. We will keep this one short and sweet. DAILY TIMEFRAME What is the Trend? The short term trend is bullish: the 9-candle EMA is trading above the 20-candle EMA. The medium term trend is bullish: the 20-candle EMA is trading above the 50-candle EMA. The longer term trend is bullish: the 50-candle EMA is trading above the 200-candle EMA. How Strong is the Current Trend? One of the ways that traders can analyze the strength of a trend is by appeal to the Average Directional Index (ADX). Readings below 20 indicate a weak or non-existent trend. If the ADX is going up, readings between 20 and 40 indicate a developing early trend of low to moderate strength. Readings between 40 and 55 indicate a strong, well-established and robust trend. And finally readings above 55 indicate an extremely strong trend that is likely approaching exhaustion. At the moment, the ADX is 25.04 on the daily chart, indicating a low strength trend that can, with additional momentum, pick up steam. But how likely is this? In order to answer that question, we are going to have to look at several other technical indicators, supply and demand levels, and chart patterns. One of these technical indicators is the relationship between the 9-candle EMA and the 20-candle EMA. Despite the impressive upward move in price action yesterday, the distance between the 9-candle EMA and the 20-candle EMA remained constant from the day before. If the trend was strong, you would expect the distance between the two to be increasing. The fact that it did not is a potential warning sign that the trend is not extremely strong at the moment. What do the Momentum Oscillators Tell Us? Another thing to consider are the two main momentum oscillators: the Relative Strength Index (RSI) and the Stochastic Oscillator. These momentum oscillators can give us clues as to whether or not the current trend is reaching exhaustion, or if it is likely to continue. Let’s first consider RSI. As of yesterday’s close, we have an RSI reading of 65.86 — a reading that is approaching the technical overbought level of 70. For reference, the last time that AMEX:SPY was trading at these levels was in August of 2022. During that incredible summer rally, the RSI pushed all the way up to 73.43 before the trend reached exhaustion and a powerful reversal ensued. Bearing that in mind, you should not necessarily be surprised if AMEX:SPY were to push into that overbought territory this time around as well before reversing. That being said, the Stochastic Oscillator is flashing a reading of 97.52, which is incredibly close to the maximum overbought reading of 100. This is a major indication for technical analysts that we may soon see a mean reversion in price action so that this all-important momentum oscillator can “cool off” for a bit. Indeed, it has been 6 days since AMEX:SPY last made contact with its 9-candle EMA, suggesting that we are potentially due for a basic reversion to the mean in price action. If we were to first push higher, though, there are a few levels on AMEX:SPY to keep in mind. How High can the Market Push? The first is the upper Bollinger Band, which closed yesterday at 430.97. While that value will shift higher today, this upper band is a level to keep in mind as potential resistance should the market catch an end-of-the-week bid. The second level is the high from August 2022: 431.73. Both of these levels are within reach if bulls want them. Finally, if things get really crazy, keep your eyes on 435.34. Are there Signs of Bearish Divergence? Notwithstanding the potential for one final push to enter the overbought territory on RSI, it is very important to note that on Monday of this week we received a technical bearish divergence signal in price action. Even though the market made a higher high than at any point in the previous 30 trading days, we did not get a higher high in: The reading on the Relative Strength Index The reading on the Stochastic Oscillator The reading on MACD When these indicators fail to make higher highs while price is making higher highs, this is an incredibly strong sign of bearish divergence. Should the market push into close, positioning for a mean reversion pullback during power hour should certainly be on watch. What are the Mean Reversion Price Targets? However high price ultimately pushes before reversal, it would be prudent to keep the following potential pullback levels in mind if you are trying to play a mean-reversion trade. The first target would be the 9-candle EMA. While it is currently trading at 424.54, this value will change with each passing day. You can use this, or potentially the 14-candle EMA, as your first “profit-taking target” for a mean reversion trading strategy. Do keep in mind, though, that there is currently some solid demand between 426.14 and 425.82 that we will have to break through in order to gain some selling momentum. The second target, should the first be broken, would be 422.58, a previous resistance level. The third “stretch” target would be around 420.73. Anything below 420 would likely see 418.31. What are the Main Supply and Demand Levels to Add to our Charts? Finally, make sure to track the recent supply and demand levels on the daily timeframe: 429.62 420.72 417.62 415.72 411.92 Stay tuned for the follow-up video where we zoom in on the hourly chart for more specific short-term guidance.
AMEX:SPY
by StockJustice
Introducing the Bars Since EMA Touch IndicatorHey there traders, Stock Justice here! Are you ready to elevate your trading game? Today, we're going to delve into an exciting indicator I call 'Bars since EMA touch', or 'BSET' for short. Buckle up, because we're about to kick your technical analysis up a notch! The BSET, at its heart, revolves around the Exponential Moving Average, or EMA. When setting up BSET, you'll be prompted for the length of the EMA, with the default being 9. This number represents the number of bars that will be averaged to create your EMA line. A higher value smooths out the line, reducing noise but potentially delaying important signals. A lower value makes the EMA more responsive, but at the risk of responding to market noise. BSET calculates how many bars it's been since the price last touched the EMA. A positive number indicates the number of bars since the price was last above the EMA, and a negative number shows how long it's been since the price was below the EMA. BSET also uses the MACD and signal line to color-code these bars. Blue and red bars indicate price is above the EMA, with blue signaling an upward trend and red signaling a possible downturn if the bar number is above 3. White and green bars indicate price is below the EMA, with white signaling a downward trend and green indicating a possible upturn if the bar number is above 3. This color-coding can be a useful tool to quickly determine whether a potential reversal is in the making or if the current trend is likely to continue. But that's not all! BSET takes it a step further by keeping track of how often price trends extend beyond certain thresholds, updating these thresholds if necessary. These thresholds, shown as red and green lines on the histogram, indicate the 15% percentile for bull and bear trends, respectively. If more than 20% of trends exceed the current threshold, it's adjusted upwards. This gives you a historical context for how long trends usually last and can help you spot when a trend is overextended and might be due for a reversal. BSET is an innovative tool that combines trend tracking with volatility in a unique way, helping you better understand market dynamics and make informed trading decisions. Just remember, every indicator, BSET included, is just a tool. Always use them in conjunction with other analysis methods and never risk more than you're willing to lose. That's it for now, traders. Keep your eyes on the charts and remember: Trade safe, trade smart! This is Stock Justice, signing off!
NASDAQ:QQQEducation
by StockJustice
NQ Intraday Analysis 04/19/23Hi all, welcome back to a new morning :) Without going into the nitty-gritty, NQ is holding a major zone right now (simplified to the most recent area) and the market has extended almost 300 points within a day. I am expecting two scenarios at the opening area which will define how I act for the remainder of the day: Scenario 1: Mean reversion long - Bulls are able to hold the major zone and end with a maximum target around 13300. Expect possible shorts around 13300 if shorts begin to hold major zones. Scenario 2: Breakout short - Bulls cannot hold the major zone and the market breaks the low of the zone with a close. If bears can hold this zone on a retest, expect short scalps with the first minimum target around 13025. Risk of reversal long back above the major zone should be taken into account. Of course, this is not financial advice and I have my own data used to validate this opening plan; please always perform your own research and judgement! Good luck and I hope all of you have a great day!
CME_MINI:NQ1!
by Billy_FX_
Natural Gas and the Dangers of Swing Trading Leveraged ETFsThinking that the war in Ukraine would cause the price of natural gas to surge higher over the winter, many traders got stuck on the wrong side of a trade. Natural gas futures have plunged more than 90% over the winter. In this video, I explain that regression analysis was warning that a significant price decline was imminent in late 2022, and I explain that it is now suggesting that a bounce in natural gas prices may soon occur. This video also explains the pitfalls that many novice traders experience when trying to swing trading leveraged ETFs that employ derivatives and which undergo volatility drag over time. Here is the link to the risk-reward / win-ratio spreadsheet that is referenced in the video. docs.google.com Shared with permission from @HeWhoMustNotBeNamed Note for stats nerds: The log-linear regression channel indicator does not give negative numbers for the Pearson correlation coefficient (r). The indicator gives the absolute value of the Pearson correlation coefficient |r|. So if the correlation is strongly negative or strongly positive, it will appear near 1 in both cases. Important Disclaimer Nothing in this post should be considered financial advice. Trading and investing always involve risks and one should carefully review all such risks before making a trade or investment decision. Do not buy or sell any security based on anything in this post. Please consult with a financial advisor before making any financial decisions. This post is for educational purposes only.
AMEX:BOIL
by SpyMasterTrades
54
Era of mean reversion, SPX year timeframeHi traders, I'm sure everyone who watches markets has made some kind of chart like this over the past six months, but I thought I'd share for those of us more comfortable with reading price action rather than economic reports or the news (obviously one needs both to be a truly excellent trader or analyst). I marked off with the pink vertical lines every low during a correction of SPX below its 21 year EMA (yellow line), before it started back up over the 21 EMA again. Soon after that low, the 21 EMA crosses the 21 year SMA of the Bollinger Bands (red line). Highs just before each of the pink vertical lines are marked by circles. The periods of both the correction low (pink vertical line) and the aftermath (21 EMA crossing 21 SMA) represent some of the toughest periods in recent economic history, at least as measured by this particular market. NOT ADVICE: From a trader's perspective, assuming we're starting to see another correction that will follow a similar pattern (i.e., a correction in which price crosses down over 21 EMA and hits a low before crossing back up), a reasonable target for SPX to cross down over the 21 EMA would be 2169, assuming 3:1 reward/risk. Corresponding stop-loss would be 4610 (NOT ADVICE). On this high timeframe I interpret that 4610 value not as any kind of actual stop loss for an actual trade, but as a rational expectation for the highest SPX level we can expect over the next few years during the correction. NOT ADVICE On a (even) darker note, the CT moving average crossover indicator currently registers "impossible" for the 21 EMA to cross the 21 SMA. To me that suggests either (1) that a much greater drop of currently unknown proportions in SPX is required below the 21 EMA (i.e., below 2169) to bring the 21 EMA down to the 21 SMA or (2) a period of consolidation and slow drift toward the 21 SMA, in order to shrink the difference between the 21 EMA and 21 SMA. I suppose the former could be called a "hard landing" and the latter a "soft landing". In my opinion, the "impossible" reading on the CT moving average crossover indicator suggests the latter scenario is at least the more rational position to take, at this point, though I plan to be ready for either scenario, of course. NOT ADVICE Good luck, everyone.
SP:SPX
by jer8877
Harnessing Gains from Mean Reversion in WTI Crude FuturesThere are three kinds of lies: lies, damn lies, and statistics. Fortunately, not always. Statistics enables investors and traders in financial and commodity markets. In statistics, mean is also known as the average. It is a number that represents the entire data set. Mean is the sum of the data set divided by number of data points in it. For example, in a group of six men who weigh between 70kg to 80kg with an interval of two kilograms apart, the mean weight of the group is 75kg. Previously, Mint published two case studies looking at WTI crude oil futures. a short position and a long position . Both of these case studies were centered upon the same range-bound price action of WTI futures. Mean Reversion in Financial & Commodity Markets In financial markets, mean refers to the average of all the data observations. For example, let's say in WTI futures, it refers to the average price of a barrel of WTI futures over the observed period. For commodity traders, mean and reversion to the mean is a godsend. Reversion to the mean is a consistent occurrence in finance. Especially in crude oil, ample academic research shows that crude oil prices tend to mean revert. In other words, crude oil prices has a tendency to stray away from the mean but will eventually retrace back to the longer term average. Asset prices oscillate around the average. The bigger the diversion from the mean, the higher the probability that prices will revert to it. Harnessing Mean Reversion in Financial Markets An astute trader can identify the pattern embedded in the price. Such traders carefully ride the path of the asset prices to gain from it and switch their positions around when prices start to trace back. This phenomenon has led to the development of many investing and trading strategies that involve the buying & selling assets whose prices have veered away from their historical averages. At its core, trading the mean reversion strategy involves buying the asset whose values have fallen below the long-term average and waiting for prices to recover back up to the long-term mean before selling it. Trading strategies are based on either taking advantage of mean reversion or momentum in the market. Markets spend greater time in consolidation mode relative to trending phases. Incorporating mean reversion in trading strategies is not only important but potentially lucrative. For those assets, whose prices are far above the mean, the strategy would then involve selling the asset first in the hope of a price correction to the mean. When prices fall, the asset is bought back at a lower price to lock in the gain. Mean Reversion is not Guaranteed. Take Caution. Readers to take caution that mean reversion is not guaranteed. Unexpected highs or lows could indicate a shift in the norm. A significant price change could be structural indicating a new normal. The structural shift may provide a significant headwind or tailwind to asset prices in the longer run. Technical Indicators to help identify Mean Reversion This paper aims to illustrate mean reversion using WTI Crude Oil futures. Crude oil prices are known to follow Brownian motion with mean reversion, according to academic literature. WTI Crude Oil futures follow a lognormal distribution with slowly changing volatility. Brownian motion? Lognormal distribution? Park them aside for now. Mint will cover those topics in another educational paper in near future. Effective mean reversion involves effective timing of trade entry and exits. Trend following indicators, such as moving averages help to identify patterns. Oscillators, such as the RSI, also enable investors to identify overbought and oversold conditions. Bollinger Bands is a complementary indicator to identify mean reversion trend. Mean Reversion in Crude Oil Prices in 2022 and 2023 WTI crude oil prices soared in the first half of 2022 as the war in Ukraine clouded supply projections after sanctions were placed on Russian oil and gas by the US and EU. This reduced the available supply pushing prices higher. However, during second half of the year, the gloomy global economic outlook and recession risks in the US meant that demand for crude oil started to drop. Moreover, COVID outbreaks in China meant that the largest importer of Crude Oil had lesser appetite to buy. Over the past 3 months, WTI Crude Oil has traded in a tight range between $70 to $80 a barrel. The reasons behind the range bound price action are: At the bottom end of the range, there is strong support between $67-72 as that is the price range that the US DoE plans on purchasing oil to replenish the Strategic Petroleum Reserve. At the top end of the range, supply outpacing demand, as well as the availability of cheap Russian oil for major consumers – China and India – limits the upside potential for oil. Capex into new oil exploration has dropped as the world starts to shift towards alternative energy sources. Despite the SPR currently at a 40-year low, the Biden administration continues to draw more crude from the reserves to limit fuel price inflation in the US & keeping WTI crude prices lower.
NYMEX:MCL1!Education
by mintdotfinance
Low-risk, Predictable Speculation on VX FuturesA lot of traders I talk to are afraid of trading volatility products. When I watch trading shows even the professionals are afraid of trading the VIX because they don't understand it. I find that funny because as someone who has experience trading all asset classes and analyzing a dozen casino games I find the VIX to be the most mean-reverting asset. The more an asset returns to its mean price, the more predictable it is, the more risk you can allocate to that product. For instance the safest bet in the casino is around 48% probability of success. That bet is betting red or black in Roulette. For investing there is no safe bet. We know that if you spread your dollars around in the S&P500 over the last 30 years, you would have done well but no one can predict which 10 stocks would have outperformed over the last 10 years. I have probably analyzed several dozen indicators over several dozen securities across all the asset classes: crypto, stocks, bonds, etc. For the last 30 years the VIX has had a flat bottom price average around 14-16 dollars. Its top is around 30-40 dollars. Comodities, equities, currencies, etc they all have black swan political or weather events. They are influenced by fear and lack. Why not trade the vehicle that correlates with fear? that's the VIX. Humans are predictable. They will always go through cycles of fear. Now we know the asset class but how do we measure the mean? I chose the Directional Trend Index but with a twist. the DTI takes 3 values to create the mean trend lines( R, S, and U) . I cycled through 1 to 50 permutations in all 3 values. It turns out that a reverse or descending numerical input is the best performing. Now we have the asset: VX Future The strategy: Reverse DTI with any descending number of your choice (10,5,3) The indicator: VIX chart 4 hours: I was told by floor traders that the big money banks use 4 hour and daily charts for analysis. So I always trade on this to swim along the trend of the big fish. So I open up a 4 hour chart of VIX, apply the pine script of DTI , update the R S and U values, and create a strategy. It returned over 100% profit in the backtesting. I tried linking my chart screenshot for proof . hopefully this worked. this is my first post. :-) TVC:VIX I traded this on traderspost automated trading with $50k paper money and I made over $35000 in 90 day free trial. Reach out to me if you would like to schedule a call for more help.
NASDAQ:AAPL
by apollos1337
$TSLA: Likely peaked for now...Tesla is stuck between a rock and a hard place, and the path going forward is likely mean reversion, price gravitating around the monthly mode area that sits below, with very well defined upper and lower barriers keeping price range bound for a while. Current short term setup is a short if price breaks into new lows on Monday pretty much, and we can already figure out the target for such action, but I would venture a guess that price needs to coil sideways next, before rallying higher over time, given fundamentals. I am cautious these days and rather trade swings, than try to hold long term positions stubbornly though. So, if you followed my last idea suggesting $TSLA was going through the last down swing before a bottom, now would be a decent time to secure gains or at least sell calls against holdings. Many ways to skin a cat, in this case the cat of volatility dampening. On the topic of guesswork, my long term guess for $TSLA was something like this, which I did when I talked about the first daily buy signal near 125.72: The longest term trend in $TSLA has expired already, so we should expect sideways and volatile action for 8 half-year bars, that's a long a$$ time... Best of luck! Cheers, Ivan Labrie.
NASDAQ:TSLAShort
by IvanLabrie
6
Heiken Ashi Algo and the Mass Effect Moving Average: Almost HereWell ladies and gentlemen I think I have created a monster and I'm really happy to call it the heiken Ashi algo and the Mass Effect moving average combination. Don't worry I have not been leaving you hanging. It's just been very busy and I want to make sure that this thing works beautifully for you. So what is the heiken Ashi algo oscillator? it is an oscillator much like the original heikin-ashi RSI with a ton more features. As you know a little while ago I came out with the CoffeeShop Crypto HARSI, Update to the original HARSI. And as development on that oscillator continued I had to change the name to the algo because now the oscillator actually speaks to you while trading is taking place. But as you know you should never use a single indicator by itself to enter and exit trades and understand what's happening on your chart. you should always use something as a secondary Confluence or even a tertiary confluence. Because the more confluences you have the better right? So with that I continued development on the Mass Effect moving average and you can use them beautifully in combination. In this video I don't want to get into the technical Aspect of all the details on how the oscillator and the moving average work but I do want to show you the parts that have been developed and what they mean. feel free to leave your suggestions below and I will make adjustments if needed. I'm probably going to need one more week before fully releasing both of these together and until then I'd love to communicate with you on anything to make it more fluid. With that let's take a look at my chart and see the breakdown. The Heiken Ashi Algo Double Stochastic - Uses a mean regression calculation for pullback notifications but it also adds support to knowing when a trend is in full swing. This happens when you see both stochastic ribbons touch each other while they are the same color Green touching green is a move to the upside. It matters most When it's above or below the 50 level. the other thing you can see here is when they touch and when they touch again as the same color is a clear sign of a Divergence. IBXL - Inside Bar Calculation. This will be moved to the Mass Effect MA as well Resistance / Support / are dynamic levels which change over time Bull Key level - Are Significant price or Price action levels which almost never change over longer periods of time. when I get a key level alert I Market on my chart with a thick line and I lock it in place. These are the major areas of supply and demand Zone on your chart and you want to watch them closely when price gets near these levels Pull Back - Helps you draw out targets to your trend lines. Now let's talk real quick about the mass effect moving average and what it will include. this uses a mean regression strategy so that you can swing trade- And get your confluences of when prices going to move up or down so doesn't matter if you are in an uptrend or a downtrend . Stop lost Trend color - Is this really a stop loss line which will follow your price action and depending on its color will tell you if you should be using a stop loss of a guy or a stop loss of a sell. Obviously if it's red you should be selling and if it's green you should be buying. do not use it incorrectly. Just because it changes to Green doesn't mean you by and just because it changes to Red doesn't mean you cell. It only means you are in an area where you should be buying or selling. The EMA's - it includes four different exponential moving averages which you can set appropriately to your style. The VWAP - Included in this is a VWAP Moving average. Even though the VWAP is used as a moving average against the RSI in the oscillator below, I included the VWAP in the Mass Effect moving average because once you switch to a daily chart The VWAP in the oscillator disappears but you can still have it on your chart in the Mass Effect moving average. So switching to a daily chart you will still be able to see your VWAP. The V-CROSS - This indication shows up so that you can see when the V WAP is crossing over your price level. This helps you know from point to point if you are above or below a support or resistance level and where is your price in relation to your VWAP. This will also help you notice when price is overbought or oversold. Fractals - Show you pivot points in market structure. I use them to find exit points for trades when there is no immediate swing low or high to be seen. Usually i look further left and use one of these points to exit. But they have even more application which I'll get into in another video. The Trend Ribbon - Is a bullish and or bearish colored ribbon to show you the trend that works in Confluence with your stop loss line which also changes from red to Green. when they are both the same color you are in a trend in that direction of up or down. The good thing about the trend ribbon is it's always seeking the same level as the VWAP and when it finally catches up to it that's when the trend usually goes flat and then reverses.
Education
by CoffeeshopCrypto
29
US30 Mean Reversion TradeThis is a daily chart of the #US30 taken this morning. It's important to note that today ties the longest run of the year without the daily bar testing the 20 day moving average. Back in August, it ran away for 24 days, ultimately to come down aggressively on that day to touch/retest the average. Today, we're extended yet again by 24 days and traders are aware that a mean reversion is imminent. Be mindful of this in your trading right now. No one can predict when the move down will happen, but it will. It's 1000 points away so expect some big moves. I anticipate a trend from the open any day now, if not today.
BLACKBULL:US30Short
by TheMeditrader
$COST Short Idea - First target 465Market has been rallying but today seemed suspect and pop in VIX implies smart money possibly hedging under the hood. Time to start looking for hedges / short opportunities , whether we get a large move down or just a pullback before going higher, IMO in the near term we see some selling. Costco is at trend line resistance and therefore I see it as a good hedge/ short candidate. Also at the top of the BB , implying as a mean reversion trade we at least see 495, with 465 being the max profit taking level for me. For the less risk adverse can trade a 525/530 call credit spread or a 525/520 put debit spread, although all out short / long put is also an option ... I'm looking at DEC opex. Cheers - Frisco
NASDAQ:COSTShort
by FriscoTrades