Reversion To the Mean Strategy for Profitable Trading

This article outlines how you can make profit from online trading of any security, commodity and indices by following a simple strategy. This is the reversion to the mean strategy for profitable trading.

To use this strategy requires 1 overlay on your basic chart. This is the bollinger bands overlay. I primarily focus on XAUUSD and I prefer to use the 30 minutes chart for my daily trading. This strategy is the simplest and most reliable. Of course, its effectiveness is enhanced, if used in conjunction with some other indicators which I would discuss on my other posts.

What is Reversion To the Mean ?

Reversion to the mean is the premise that when the price of the security, commodity or indices has moved far away from its mean value, it will eventually move back down to its mean value.

When it is bullish, it would go up, pull back to the mean and continue upwards. When it is bearish, it would go down, pull back to the mean and continue downwards.

Reversion to the Mean Strategy for Profitable Trading Setup

Firstly, register for an online trading platform if you do not yet have one. One platform which you can consider is FXTM Partners. It comes with super fast execution, is regulated and licensed in multiple jurisdictions, and quick client approval. What I like most about them is the abundance of educational materials, especially webinars. You can join these webinars for free. So, if you do not have an account yet, open one today Here

To use this, we will need to construct our chart with the bollinger band. The bollinger band setup is typically consist of a mean line and a +2 and a -2 SD lines.

This strategy is simply taking action when the price action hits the mean or becomes over-extended in either direction. You buy when price reaches the mean and sells when it becomes over-extended in a bullish environment. At the other end, sell when price reaches the mean and buys back when it becomes over-extended in a bearish environment.

When to and When not to use this strategy

This strategy is very useful for trending markets, whether going up or going down. It is not as effective in the directionless market as it will tend to swing from one end to the other end.

Check out all our posts on online trading Here

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