How to develop a system for Flet
Trends in markets are thought to be present less than 30% of the time. All the rest of the time, prices move messy and chaotic in ranges. But what to do in such cases to traders - sit and wait by the sea weather? Of course not. It is for such situations that systems of return to the average were invented, about which our conversation today will be.
Strategies to return to average steel have been very popular since 2009. They have shown themselves very well in the past 10 years, and even during the bear market 2008-2009. In this class of strategies, a simple and understandable idea is very bribery - if the price moves up today, it will be inclined to go back down tomorrow. We 'll talk about it today.
Mean reversal is a mathematical method used frequently in investing in securities. It is based on the assumption that both high and low prices are temporary, and that prices usually have a time average. Strategies of this class calculate the average price using analytical methods, such as moving averages. When the current market price is less than the average value, the asset is considered attractive to buy, as the price is expected to increase in the future.
When the current market price is greater than the average, the price is expected to decline in the future. In other words, this strategy is based on the expectation that, despite deviations from the average, the market price will still return to it. Different oscillators are often used as an indicator of whether to buy or sell.
An oscillator is a price-based indicator that tends to oscillate or oscillate within some fixed or sufficiently tight limits. Oscillators are characterized by some normalization of range and removal of long-term price trends. Information is extracted by oscillators from indicators such as momentum and overvoltage. Momentum is a state where prices move powerfully in a given direction. Overvoltage is a state of excessively high or low prices (overbought and oversupply) when prices are ready to return sharply to a more reasonable level.
Sometimes the oscillator is shaped as a pendulum: the more it deviated from the equilibrium value, the greater the force acts on it, returning it to the equilibrium point. This is a very rough model, but it explains the principle of the idea on which the use of oscillators is based. There are many more degrees of freedom in a more accurate model. The oscillator is a pendulum, but this pendulum is fixed on the end of another larger pendulum, and that, in turn, on the end of an even larger pendulum and so on, to infinity. Even in this respect, markets are fractal in nature.
There are two main types of oscillators. One of them is linear operators (filters), which perform certain linear transformations over a time row and mainly analyze oscillation frequencies, representing a kind of band-pass filters. Another class results in a normalized scale of any aspect of price behavior. Unlike the first category, these oscillators are not linear filters, i.e. the operations they perform over the price schedule are irreversible. Both types of oscillators respond to price momentum and cyclical movements, while reducing the role of trends and ignoring long-term shifts. The graphs built for such oscillators have a broken, oscillating appearance.
Returning to the middle is not a universal phenomenon. Prices of some financial instruments have such a tendency, and others do not. This forces many analysts and traders to look at a return to the average with some degree of skepticism. However, these systems may well generate very good income for traders, especially during the absence of any trends.