Mean reversion combined with momentum strategies

AI & Machine learning
1

Hello there:



 I have seen this video: https://www.youtube.com/watch?v=lji-jNsXmAM , where it is said that trend following  is combined with mean reversion.   Does anyone here have any idea about this??







 

2

 

Hi Ghery, 



    A trend-following strategy generates trading signals in the direction of a long-term trend. A mean reversion strategy generates buy signals in oversold conditions and sell signals in overbought conditions. 



A trend-following approach combined with mean reversion generates buy signals in oversold conditions and sell signals in overbought conditions while trading in the long-term trend direction.



Consider the following strategy:



Long entry: 

        1. 100-day SMA crosses above 200-day SMA

        2. RSI below 30



Long exit: 

        1. RSI above 70



Here, we act on mean reversion signals while trading in the long-term trend direction.



Similarly, here are short signals.



Short entry:

     1. 100-day SMA crosses below 200-day SMA

     2. RSI above 70



Short exit:

        1. RSI below 30



The above strategy is an example of combining trend following with mean reversion. Before using these signals in live, please backtest on sufficient historical data.



Thank you