Brett Steenbarger

Psychologically Sophisticated Trading: The Meek Shall Inherit Nothing

Hi RS,

Thanks for the data and comment. The key idea, indeed, is that returns are mean-reverting over a relatively short time horizon. In a recent post on my blogsite, I found no such mean reversion when looking at strong 100-day periods. At the other end of the spectrum, looking tick by tick, there are very strong reversion effects due to automated trade close to the market. Knowing the patterns that are relevant to your time frame is key. I appreciate the interest--

Brett

Limits of Perception in Market Analysis

Hi Greatest Trader,

Yes, you can certainly think of this regime as one of short-term mean reversion. If you identify value regions (in Market Profile terms), you can handicap the odds of moves to the edges of the region breaking out vs. returning to the point of control.

Brett

Limits of Perception in Market Analysis

Hi Richard,

Yes, I do test a variety of indicators, including the % of stocks trading above their volatility envelopes (Bollinger Bands), number of stocks making new highs/lows, put/call ratios, etc. Because many of these indicators are highly correlated with price change, it's important to partial out price before looking at the unique predictive value of the indicator. I'll be posting some of this work shortly. Thanks for your interest--

Brett