Stocks & Commodities V. 36:10 (8–14): Probability—Probably A Good Thing To Know by John F. Ehlers

Probability—Probably A Good Thing To Know by John F. Ehlers

The idea of reversion to the mean is one that traders tend to take for granted. Can you confidently assume all indicators subscribe to the normal probability distribution? Here, we measure the probability distribution of a few indicators to determine if they can be used as part of your reversion-to-the-mean trading strategy.

Swing trading, or reversion to the mean, is a popular trading style mainly because it is a strategy that typically yields a relatively high percent of winning trades. The idea behind it is that if prices have swung far enough from their mean price, there is high probability that price will swing back to the mean value ...