Hello there:
I am enrolled in the course mean reversion strategies in Phyton, and I would like to know which indicator is optimal for mean reverting strategy??, and since most indicators are computed taking into account an specific number of periods… how many periods Do I need to consider for that indicator and why??
Thanks a lot
Hi Ghery,
For a mean reverting strategy, we first check whether a given series is stationary or not, or if you are pair trading, then you will check for the difference in the price series.
Coming to your question, a popular way to use the mean reverting property is to use the bollinger bands. Bollinger bands consist of an upper and lower bound as well, which helps us set an entry and exit point accordingly.
The number of periods actually depends on how far back you want to incorporate the information. For the course, the number of periods is 5.
One way to look at it is to take a week's data to calculate the entry and exit point. Some people might take two weeks, even one month, which is 20.
You can tweak the number of periods when you are backtesting the trading strategy,
Hope this helps. Thanks.
Thanks to you…