Better System Trader 127: Building Mean Reversion trading strategies with Cesar Alvarez - Part 1
Oct 14, 2017
Cesar Alvarez, a Mean Reversion specialist, discusses the steps to building a mean reversion trading strategy, the importance of selecting a trading universe, techniques to measure mean reversion, combining indicators for better trades, and why smooth equity curves may not be the best strategies. They also explore the appeal of mean reversion trading for quick profits and discuss liquidity, transaction costs, and using filters and indicators for trading setups.
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High-Level Steps for Mean Reversion Strategy Building
- Define your strategy's goals, like high returns or low drawdowns.
- Determine your trading universe, such as S&P 500 stocks or small caps.
Goals and Targets in Mean Reversion
- Cesar Alvarez prioritizes the compounded annual growth rate, top drawdowns, and drawdown length.
- He avoids strategies with smooth equity curves, believing they attract too much attention.
Selecting a Trading Universe
- Choose a trading universe based on your risk tolerance and desired returns.
- S&P 500 stocks offer lower volatility but also lower returns compared to smaller stocks.