The Mean Reversion Swing is a long entry strategy proposed by Ken Calhoun. Designed for swing trading purposes, this strategy adds a simulated long entry order when a mean reversion sequence (uptrend - 50% pullback - uptrend) is detected on chart.

The sequence consists of three segments, which need to satisfy the following criteria (all specified numbers are used by default and may be customized in the input parameters):

  • The first segment is an uptrend that lasts for at least 20 bars and, during this period, the price has risen by at least 5 dollars.
  • The second segment is almost precisely 50% retracement; the precision can be controlled by the tolerance input parameter, which is set by default to 1%.
  • The price then rises by at least 0.5 dollars.
  • The maximum length of the entire sequence is 400 bars.

Input Parameters

min length Defines the minimum length of the first segment.
max length Defines the maximum length of the entire pattern.
min range for uptrend Defines the minimum high-low range of the first segment.
min up move Defines the minimum up move in the third segment after which the simulated order is added.
tolerance Defines the maximum possible deviation from the 50% retracement value for the second segment.

Further Reading

1. "Mean-Reversion Swing Trading" by Ken Calhoun. Technical Analysis of Stocks & Commodities, December 2016.

Backtesting is the evaluation of a particular trading strategy using historical data. Results presented are hypothetical, and there is no guarantee that the same strategy implemented today would produce similar results.

Technical analysis is not recommended as a sole means of investment research.

For educational purposes only. Not a recommendation of a specific security or investment strategy.

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