Algorithmic Trading: MEAN REVERSION Trading Strategy in PYTHON
In this tutorial we'll see how to implement in Python one of the most popular trading strategies among beginners, due to its ease of implementation for algorithmic trading: the Mean Reversion Trading Strategy.
From Investopedia.com:
Mean reversion, or reversion to the mean, is a theory used in finance that suggests that asset price volatility and historical returns eventually will revert to the long-run mean or average level of the entire dataset.
The mean reversion theory is used as part of a statistical analysis of market conditions and can be part of an overall trading strategy. It applies well to the ideas of buying low and selling high, by hoping to identify abnormal activity that will, theoretically, revert to a normal pattern.
Mean reversion trading in equities tries to capitalize on extreme changes in the pricing of a particular security, assuming that it will revert to its previous state. This theory can be applied to both buying and selling, as it allows a trader to profit on unexpected upswings and to save on abnormal lows.
Chapters:
00:00 - Introduction
01:12 - Moving Parameters
02:24 - Upper/Lower Band
04:55 - Mean Reversion Strategy
10:10 - Profit & Loss