• iTunes
  • Twitter
  • Facebook
  • Google+
  • Instagram
  • Youtube
  • Email
  • Home
  • Courses
  • eBooks
  • Library
  • ET Club
  • BST LIVE
  • Leasing
  • About
Better System Trader

Better System Trader

Better System Trader is the podcast and blog dedicated to systematic traders, providing practical tips from trading experts around the world.

081 – Trading the Mean Reversion Curve

http://traffic.libsyn.com/bettersystemtrader/BetterSystemTrader-Ep81-TradingTheMeanReversionCurve.mp3
Play in New Window|Download

One of the challenges of Mean Reversion trading is deciding when to get into a trade.

How far from the mean should we actually wait before we consider getting into a trade?

In a trending environment where the dips are shallow, getting in closer to the mean can bring lots of trading opportunities which can perhaps translate into more profits, however when market conditions change that approach can be a recipe for some big losses or drawdowns by getting in too early.

Mean Reversion traders can often experience a great run with lots of small wins, only to see them get wiped out pretty quickly, often in just a few big losses.

This has definitely happened to me in the past, especially in my stock trading, and I’m sure lots of other traders are listening and nodding their heads too.

In fact, I received an email about this exact challenge from a listener called Simon a few weeks back:

“I have a stock trading mean reversion model, that has all the right ingredients: great risk adjusted performance; incredible consistency; very large sample sizes for testing; simplicity; etc.

The one issue that I’m trying to improve is the nasty DD’s which occur naturally when trading correlated contracts (stocks) all moving south together, and continuing that way without reverting.  

As you’d know, all available positions get sucked into these down moves, compounding the issue.  Simple stops don’t seem to be the answer based on their overall impact on the system.

Couple of things I’m trying (sometimes in combination) and with some success:

– throttling number of positions that can be triggered per day, effectively spreading the risk over the down move.

– critical model-stop-and-wait functionality when DD increases.

– market regime based methods of throttling or stopping new entries.”

All 3 of these options are quite popular techniques that could help to reduce drawdown but there is another idea which PJ Sutherland shared with us back in episode 62 of the podcast, which I thought was quite interesting…

…and that was this idea of trading the mean reversion curve.

Let’s take a quick listen to PJ explaining this concept, because it has a number of potential benefits and we’ll see how it could possibly help in this type of situation.

Happy Trading,
Andrew.

Got A Question, Topic or Guest you want to see on the Podcast?

Do you have a specific question, topic or guest you’d like to see on a future podcast episode?

Click here and submit your suggestion for a chance to have it featured on an upcoming podcast episode.

Subscribe to Better System Trader and never miss another episode!

subscribe-with-itunes-button stitcher soundcloud android

Please support the podcast by giving an honest Rating/Review for the show on iTunes!

Episode Released:

9 March 2017

  • facebook
  • linkedin
  • twitter
  • google+
  • pinterest
  • stumbleupon
080 - "My Best Losing Year Ever"
082 - Machine Learning with Kris...

Related Posts

  • 178 – How to build Mean Reversion trading strategies – Stefan Friedrichowski
  • 091 – Leveraging Exits with Laurent Bernut
  • 120 – 3 trading inspirations
  • 016 – Creating Robust Strategies – Andrea Unger
  • 5 top tips to accepting painful drawdowns

Trackbacks

  1. Quantocracy's Daily Wrap for 03/16/2017 | Quantocracy says:
    March 17, 2017 at 3:15 pm

    […] Podcast: Trading the Mean Reversion Curve [Better System Trader] […]

  2. 17th March 2017 – Nikhil Dogra says:
    March 17, 2017 at 5:53 pm

    […] 081 – Trading the Mean Reversion Curve [Better System Trader] […]

Want all the trading knowledge of 100+ episodes in a handy ebook format?

Learn how successful traders approach their trading and save time with these handy eBooks of interviews compiled from the Better System Trader podcast.

Click for more info

What pro traders are saying about BST

"BetterSystemTrader is an amazing resource of valuable information, Andrew is always able to ask the right question at the right time to deliver the best content possible, a must listen for anybody interested in trading!"

Andrea Unger skilledacademy.com

"Andrew has interviewed some great people and I have picked up some useful new insights. His integrity, trading knowledge, light-hearted attitude, curiosity and enthusiasm shine through and enhance each of his podcasts. Given the quality of the information and the price (free!) any serious trader would have to be a fool to not take advantage. Keep it up my friend."

Bob Pardo pardocapital.com

"Knowledgeable and credible guests talk about useful topics in an interesting and engaging discussion. What's not to like?"

Robert Carver systematicmoney.org

"The key to better system trading is information.  As a system trader himself, Andrew has unique capability of asking insightful questions that extract the skills of each guest."

John Ehlers www.mesasoftware.com

"The Better System Trader podcasts have become an invaluable resource... There's no other podcast around that covers the subject in so much breadth and depth."

Alan Clement helixtrader.com

"Listening to BST is a requirement for everyone on our team."

Bert Mouler profluentcapital.com

"The right questions to the right people at the right time."

Nick Radge thechartist.com.au

"Being a trader himself, Andrew drives insightful conversations that uncover gems of practical knowledge that can improve your trading today"

Kris Longmore robotwealth.net

"If I had to listen to one trading podcast only, it would be Better System Trader. I am always learning new things and getting research ideas from Andrew’s guests."

Cesar Alvarez alvarezquanttrading.com

"I really enjoy listening to the Better System Trader podcasts. Even though I am in the industry for over 15 years, there is always something new to learn from these. Thank you!"

Martin Lembak striker.com

"Better System Trader is an invaluable resource that I've gleaned tremendous amounts of information from over the years. I wouldn't be the trader I am today without having found this resource. Please keep up the great work."

David Bergstrom buildalpha.com

"This podcast provides unique information, from real traders, interviewed by an experienced trader."

Kevin Davey kjtradingsystems.com

"If you have been looking for that little extra nugget to transform your trading, you will find it at Better System Trader."

Laurent Bernut alphasecurecapital.com

"Andrew is a master at asking difficult and relevant questions."

Perry Kaufman perrykaufman.com

"I get some of my best ideas from listening to other market participants and Better System Trader is a great resource of conversations with trading professionals."

Michael Cook thetradingmasterclass.com

"I really enjoy the wide variety of topics and perspectives shared in the podcasts and with the interviews done by someone with real life trading experience"

Tim Rea thetradingmasterclass.com

"Professional, to the point and relevant content. Better System Trader should be followed by anyone with an interest in our field."

Andreas Clenow followingthetrend.com

Trading stocks, options, futures and forex involves significant risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of future results.

© 2015 Better System Trader · Disclaimer & Terms · Privacy Policy · Sponsor