Is the half-life the hold period for mean reversion system? Meaning we should rebalance very halflife*candles?
Hello Jane,
Half-life is the time taken by the time series to revert to its mean. So, yes, the half-life can be used as a holding period for a mean reverting system. You can also place a stop loss to your mean reversion trades once the time series reached its half-life period.
However, it can't be used to rebalance. The reason is, you enter into a mean reverting trade once the time series is away from the mean. If you rebalance at an interval of half-life, the time series would probably be at the mean which is not a place to enter a meanreverting trade.
Hope this helps!
Thank you!