Category Archives: Mean reversion (finance)

Which Forex Pairs are Generally Trending and Which Ones Tend to Revert to the Mean

Which Forex Pairs are Generally Trending and Which Ones Tend to Revert to the Mean
Which Forex Pairs are Generally Trending and Which Ones Tend to Revert to the Mean

In this article, I will systematically investigate the tendency of different Forex pairs to either trend or revert to the mean. I will do so by backtesting a simple trend-following strategy. (Code available on Github. See the end of this article.)

“The trend is your friend.”, is a very well known trading adage. Another thing you read a lot in trading books, blogs, etc. is that the market only trends 20, 30, 40, xx% of the time.

I was wondering how these ideas relate to the Forex markets. Continue reading

Meanreversion and Breakout research on the EURUSD

Mean reversion and Breakout strategy combo
Mean reversion and Breakout strategy combo

Below is a snapshot of some trading research I have been doing.
By no means this is a trade-able strategy as is, but it does show two of the basic trading principles:

  • Mean reversion
    This is the principle that price tends to return to it’s mean after it has moved away from it.
  • Breakout
    This is the principle that price tends to break away once it has moved more then a certain percentage usually after a period of consolidation.

Continue reading