Key attribute of mean reversion robots:
1. Identify overbought/oversold: Use indicators like RSI, Bollinger Bands, or Stochastic Oscillator to detect extreme market conditions.
2. Assume reversion: Assume that the price will revert to its mean or average value.
3. Buy/sell signals: Generate signals to buy or sell based on the assumption of reversion.
4. Risk management: Use stop-loss orders and position sizing to manage risk.
Advantages:
1. High probability trades: Mean reversion robots can identify high-probability trades based on historical data.
2. Low risk: Trades are typically closed quickly, reducing exposure to market volatility.
3. Consistency: Mean reversion robots can maintain a consistent trading approach.
Disadvantages:
1. False signals: Mean reversion robots can generate false signals, leading to losses.
2. Market trends: Mean reversion robots can struggle in trending markets.
3. Volatility: Mean reversion robots can be affected by sudden changes in market volatility.
Popular mean reversion indicators:
1. Relative Strength Index (RSI)
2. Bollinger Bands
3. Stochastic Oscillator
4. Mean Absolute Deviation (MAD)
5. Standard Deviation
When selecting a mean reversion robot, consider:
1. Strategy: Understand the underlying strategy and indicators used.
2. Risk management: Evaluate the robot's risk management techniques.
3. Backtesting: Review historical performance and backtesting results.
4. Live trading: Monitor live trading performance and adjust as needed.
Always have it in mind that, mean reversion robots are not a holy grail and should be used in conjunction with proper risk management and trading knowledge.
