TradeAutomation

ETF 3-Day Reversion Strategy

Introduction: This strategy is a modification of the “3-day Mean Reversion Strategy” from the book "High Probability ETF Trading" by Larry Connors and Cesar Alvarez. In the book, the authors discuss a high-probability ETF mean reversion strategy for a 1-day time-frame with these simple rules:

  • The price must be above the 200 day SMA and below the 5 day SMA .
  • The low of today must be lower than the low of yesterday (must be true for 3 consecutive days)
  • The high of today must be lower than the high of yesterday (must be true for 3 consecutive days)
  • If the 3 rules above are true, then buy on the close of the current day.
  • Exit when the closing price crosses above the 5 day SMA .
In practice and in backtesting, I’ve found that the strategy consistently works better when using an EMA for the trend-line instead of an SMA . So, this script uses an EMA for the trend-line. I’ve also made the length of the exit EMA adjustable.

How it works:
The Strategy will buy when the buy conditions above are true. The strategy will sell when the closing price crosses over the Exit Moving Average

Plots:
Green line = Exit Moving Average (Default 5 Day EMA )
Blue line = 5 Day EMA (Used as Entry Criteria)

Disclaimer: Open-source scripts I publish in the community are largely meant to spark ideas that can be used as building blocks for part of a more robust trade management strategy. If you would like to implement a version of any script, I would recommend making significant additions/modifications to the strategy & risk management functions. If you don’t know how to program in Pine, then hire a Pine-coder. We can help!

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Open-source script

In true TradingView spirit, the author of this script has published it open-source, so traders can understand and verify it. Cheers to the author! You may use it for free, but reuse of this code in a publication is governed by House Rules. You can favorite it to use it on a chart.

Disclaimer

The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.

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