been running mean reversion strategies for 4 months.
works well. 87% win rate in july.
but: only trades when price reverts.
misses trending moves.
the idea #
add momentum overlay to existing system.
mean reversion: buy dips, sell rips, expect reversion to mean
momentum: follow trends, ride winners, cut losers fast
combine both: trade mean reversion in ranging markets, momentum in trending markets.
how to detect regime #
ranging market indicators:
- 20-day ATR < 50-day ATR (volatility contracting)
- price within ±1 std dev of 20-day SMA
- no new 20-day highs/lows in past 5 days
trending market indicators:
- 20-day ATR > 50-day ATR (volatility expanding)
- price outside ±1 std dev of 20-day SMA
- new 20-day high/low in past 3 days
strategy logic #
if ranging_market:
use mean_reversion_strategy()
# current system, already working
elif trending_market:
use momentum_strategy()
# new addition
else:
wait_for_clear_regime()
# skip unclear regimes
momentum strategy rules #
entries:
- buy breakout above 20-day high
- sell breakdown below 20-day low
- only in direction of trend
exits:
- trail stop at 2 × ATR
- profit target at 3 × ATR (risk:reward = 1:1.5)
- max hold: 5 days
position size:
- same 1.25% risk as mean reversion
- but faster stops (2 ATR vs fixed dollar)
paper trading results (7 days) #
ran in paper mode alongside live mean reversion.
trades: 4 momentum trades (all paper)
- 3 wins: +$280, +$340, +$405
- 1 loss: -$270
win rate: 75% (3/4) avg win: +$342 avg loss: -$270 profit factor: 3.8
vs mean reversion same period:
- mean reversion: 6 trades, 100% win rate, +$2,065
- momentum: 4 trades, 75% win rate, +$755 (paper)
key differences #
mean reversion:
- high win rate (80-90%)
- small consistent wins
- works in ranging markets
- most of the time (70% of days)
momentum:
- lower win rate (70-75% expected)
- larger wins when right
- works in trending markets
- less frequent (30% of days)
combined: capture both regimes.
what i’m testing this week #
running momentum strategy in small size (0.5% risk).
live money but reduced risk while validating.
criteria to go full size:
- 20+ trades
- win rate > 70%
- profit factor > 2.0
- no correlation increase with mean reversion
potential issues #
1. regime detection lag
by the time i detect trend, might be late.
solution: use faster indicators (10-day instead of 20-day).
2. whipsaws
fake breakouts trigger entries, then reverse.
solution: require volume confirmation on breakouts.
3. correlation with mean reversion
if both strategies lose together, not adding diversification.
solution: track correlation daily, adjust if >0.5.
trading update #
monday 8/7:
- mean reversion: GLD put spread +$385
- momentum (paper): none (no trending regime detected)
august total: +$2,450
goal: +$4,000. need: +$1,550 in 3 weeks.
next steps #
continue paper trading momentum for 2 more weeks.
collect 20+ trades.
then decide: add to live system or abandon.
3:55am monday. testing momentum overlay. early paper results promising. might add regime diversification.
-AK