Strategy patterns
Mean reversion
Buy after a sharp fall and sell once the price has recovered, judged by the RSI or by Bollinger bands.
What it is
A mean-reversion rule buys when a measure says the price has fallen hard and fast, and sells once it has come back.
The RSI is the usual measure: it scores recent rises against recent falls, from 0 to 100. Bollinger bands are another: a close below the lower band counts as a sharp fall.
How to write it
Each example opens in the Strategy Agent with the words typed in. Nothing is sent until you press its button.
RSI strategy on Apple over the last 5 years
Try it: open the Strategy Agent with these words typed in, unsentBuy SPY when RSI(14) drops below 30 and sell when it rises above 70, over the last 10 years
Try it: open the Strategy Agent with these words typed in, unsentBuy QQQ when the price is above its 200-day SMA and RSI(14) is below 40; sell when RSI(14) rises above 70, over the last 5 years
Try it: open the Strategy Agent with these words typed in, unsentBuy QQQ when the price is below the lower Bollinger band and RSI(14) is below 30; sell when RSI(14) rises above 50, over the last 5 years
Try it: open the Strategy Agent with these words typed in, unsentIts recorded tests
The evidence explorer runs rules like these across fixed sets of US, UK and European shares and funds, with the same costs throughout, and sets each beside simply holding. See the mean reversion (rsi) tests.
Templates in the community library:
- Buy the dip on SPY with RSI: Buy the S&P 500 when its 14-day RSI says it's oversold, and exit once RSI recovers above 50.
- Buy the dip on QQQ with RSI: Buy the Nasdaq 100 when its 14-day RSI says it's oversold, and exit once RSI recovers above 50.
- RSI dip-buying on Apple: Buy Apple when its 14-day RSI drops below 30, and exit once RSI recovers above 50.
- Financials dip-buying: RSI on XLF: Buy the financial sector ETF when its 14-day RSI drops below 30, and exit once RSI recovers above 50.
What to watch for
- It buys while prices are falling, so a fall that keeps going is the case it is most exposed to. A trend filter or a stop limits how long it waits.
- It waits in cash for a sharp fall. If falls that sharp were rare in the period tested, it made few trades, and then one trade can swing the result.
The rules it uses
Related
- Education CentreMean ReversionA rule that buys after a sharp drop and sells once the price is back near its recent average. A worked example, and what it does not tell you.
- Rule referenceRule referenceEvery kind of rule the engine runs, with what it does, the settings the agent uses when you name none, and an example to try.
- Core conceptsProve itProve it runs a finished result through harder tests, to see whether luck alone could explain it.
- EvidenceEvidence explorerA designed grid of house tests across US, UK and European universes, same costs throughout, with every refusal kept.
These pages describe how Quantis Trade works and what its tests show about the past. They are not forecasts and not advice.