Discussion : trade trending or mean reversion??

 

Hi,

I'm new to forex trading and MQL5, I want to open a discussion between these two typical strategies, what are the advantages and disadvantages of each strategy? I'm kind of confused cause I'm new to trading. Advices are welcomed, thanx

 

If it is related to the market condition so I am suggesting to you to look at the following links/posts:

Forum on trading, automated trading systems and testing trading strategies

Market Condition Evaluation based on standard indicators in Metatrader 5

Sergey Golubev, 2013.09.01 21:06

This my post? red dotted lines are for possible sell stop trade, blue dotted lines are are possible buy stop ...

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Anyway - I just copied some latest summary from this thread :

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Market Condition Evaluation

story/thread was started from here/different thread

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Market condition

  • the theory with examples (primary trend, secondary trend) - read staring from this post till this one
  • Summary about market condition theory is on this post 
  • Practical examples about every market condition case by indicators: starting from this page till this one
     
  • trendstrength_v2 indicator is here,
     
  • AbsoluteStrength indicator new version is here

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3 Stoch MaFibo trading system for M5 and M1 timeframe 

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PriceChannel ColorPar Ichi system.

 

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MaksiGen trading system 

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 Merrill's patterns are on this page.

 

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Divergence - how to use, explanation and where to read about.

  

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Scalp_net trading system

  • template/indicators and how to use are on this comment.

  • scalp_net_v132_tf EA is on this post with optimization results/settings for EURUSD M5 timeframe
     
  • possible settings #1 for this EA for EURUSD M5 timeframe with backtesting results is on this post.
     

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MTF systems 

more to follow ...

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MA Channel Stochastic system is here.

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Ichimoku


 

If it is related to Mertatrader 5 so the following summary may be usefull in this case:

Forum on trading, automated trading systems and testing trading strategies

How to Start with MT5, a summary !

Alain Verleyen, 2013.03.15 16:12

How to start with MT5 platform : summary.

As our topic about "How to start with Metatrader 5" is going to be huge, here you find a summary, with main links.



For developpers.


Work in progress, stay tuned :-)


 
And I am suggesting to you to read this thread from the beginning (because it is the thread where I was teaching myself and posting in the same time).
 

Hello,

I think I didn't express my question clearly. My question is general, what are the advantages and disadvantages of treding following and mean reversion? It is not quite related to MT4/5. It's a plateform-independant question

 

If it is related to the market condition so you can look at this page till this one.

Because trend following is the primary trend (bearish/downtrend or bullish/uptrend). But there are secondary trends within those primary trend conditions: ranging and counter trend (correction or rally). I mean - the reversal is not going to be in immediate way - the reversal is the result of the counter trend (correction or rally).

There are some systems (the threads are on this forum with the indicators etc) which are 'catching the trend' in very beginning (providing the signal on reversal) or in the middle of the trend (by providing the signal when the trend is already established).

To make it shorter:

  • if you are going to catch the trend in reversal (in the beginning of the trend started - BrainTrend system for example) so you care about entry (false entry or true entry). Of course, in case of valid/true signal - you are getting good pips in profit.
  • if you are going to catch the trend in general by entry in the middle of the trend (when the trend is already established - Asctrend system for example) so you care about where to exit more than entry. It will be less pips in profit but less risk in trading as well.

So, there are different strategies ... dofferent indicators ...

And the reversal is based on indicators too ... I mean: price itself does not know that we are separating them/price on the chart by 200 period SMA or 55 period EMA for example :) so it is some kind of "virtual situation".

 
For example, one person can say that EURUSD D1 is on downtrend trend following situation, the other person understands this movement as just a secondary correction near reversal. So, it depends on how we are estimating it.
 

Just look at this chart (and you will understand that estimating the trend or reversal is related to the indicators/methods we are using for that):


 

Most universal method to estimate the trend and to catch the reversal is Ichimoku indicator (for H4 timeframe and highier).

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Because we are not using everything (all indicators and so on). Each of us is using some 'his set' of tools/indicators to estimate the trend/reversal. Most popular tools are the following:

  • 200 period SMA;
  • 100 period SMA
  • 50 EMA;
  • 55 EMA;
  • 21 EMA;
  • Ichimoku;
  • Digital filters.

There are famous analysts who are using Ichimoku to estimate the trend and reversal, and there are the other analysts who are using Moving Average indicator (SMA or EMA), and they do not like each other :)

 

This is some video related to Mean Reversion Strategy I think ...

And there is some book here

 

Thanks for all your responses!!!