Mean Reversion Trading System - Catching a Falling Knife

Sometimes knowing what is working in the current market over the last couple of weeks and seeing how rare it is for that pattern to work can give you an idea of the cycle you are in and potentially tell you why your strategies may be struggling.

Since the last week of January, the market has been extremely difficult. Its unusual to see this type of wide ranging swings and level of mean reversion.

We prove it in this video and show you how well buying the low and shorting the high works the last couple of weeks but doesn't work longer term.

You have to wonder what type of liquidity starts to trade such a bad trading system to make it work for short periods of time.

Dumb money with too much money can look smart since they can move the market. In general, their hold time is longer than the day trade tests we show here.

We might be looking at another move higher with this amount of dip buying in the market.

This is an example of how to use a trading system as an indicator (to develop a more specific and tradeable trading system) and how to use a trading system to characterize the market.