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2005issue C091-4

A moving-average short pullback that is only in scope in a decline

The archive treats declining, advancing, and basing markets as separate environments. A short setup that waits for a bounce to a 35-session average is reserved for a confirmed decline, with NASDAQ trendlines marking when that procedure is in force.

  • Declining, advancing, and basing markets are framed as distinct environments that each need a dedicated procedure rather than one generic system.
  • The short setup needs a downtrend, 15 consecutive closes below the 35-session average, a pullback to within 1% of that average, and a break of the setup session low before the short is entered on the following open.
  • A break of an ascending NASDAQ trendline creates an uncertain interval. Short-side tools stay in force only after lower highs and lower lows allow a descending line to be drawn.
  • The short-pullback procedure is intended for declining markets and is not applied while the market is advancing or basing.
Entries in this reading3 entries
Current trackMean reversion43 readingsTrendline128 readingsMoving average449 readings

Separate procedures for separate markets

The archive frames declining, advancing, and basing markets as distinct environments. Each environment needs a dedicated procedure rather than one generic system.

The moving-average short setup below is the declining-market procedure. The archive concludes that this short-pullback procedure is intended for declining markets and should not be applied while the market is advancing or basing.

The moving-average short setup

In this archive usage, the moving average is a 35-session simple average of closes. It is the pullback reference for a short-side setup that requires prior closes below the average and a retracement back to within a stated band of it.

The moving-average short setup requires a downtrend, 15 consecutive closes below the 35-day average, a pullback to within 1% of that average, average daily volume above 200,000 shares, a price above $15, and a stochastic reading below 80.

Trigger, entry, and cover

A valid setup on one session triggers only if the next session trades below that session's low, with the short entered on the following open.

In this archive usage, mean reversion is that short-side procedure: it waits for a bounce toward a declining average, then enters only if price breaks the prior session low. The bounce is treated as a temporary retracement inside a downtrend rather than a new uptrend.

The backtest exit used for comparison held the short for three days and covered at the open. Discretionary covers mentioned include approaching support, declining volume, or a close below the lower Bollinger Band.

An IBM session that met the rules

The IBM illustration met the pullback rules on March 31, 2005 and triggered the next session when price broke the prior low.

MAS short results in the January–October 2002 NASDAQ decline

In the 2002 NASDAQ decline the moving-average short test averaged a 1.67 percent gain per trade, winners made 4.18 percent, and losers cost 2.77 percent. Over the same holding windows the NASDAQ itself averaged a loss. The bars are the Average Profit/Loss and Average OCEXCH Profit/Loss rows from the AIQ Expert Design Studio summary.
In the 2002 NASDAQ decline the moving-average short test averaged a 1.67 percent gain per trade, winners made 4.18 percent, and losers cost 2.77 percent. Over the same holding windows the NASDAQ itself averaged a loss. The bars are the Average Profit/Loss and Average OCEXCH Profit/Loss rows from the AIQ Expert Design Studio summary.MAS shorts versus NASDAQ (OCEXCH) · daily · 2002-01-11T00:00:00.000Z to 2002-10-11T00:00:00.000Z

The software entered and covered at the open and held each short for three sessions. The run assumed all 83 signals were taken; the article treats the 145.47 percent annualized figure as a merit score, not a forecast.

Trendlines that keep the procedure in or out of scope

The first historical test window cited is the NASDAQ decline from January 18, 2002 to October 11, 2002, when the index moved from 2098 to 1108.

In this archive usage, a trendline is a line drawn across successive NASDAQ lows in an advance or highs in a decline. It is used as a regime switch that tells the trader when short-pullback tools are in or out of scope.

Trendline breaks on the NASDAQ are used to mark a change of condition. A break of an ascending line creates an uncertain interval. Only after lower highs and lower lows is a descending line drawn to keep short-side tools in force.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
13 of 36 in the Mean reversion track
20061-4 pp.Next on Mean reversionConstructing an adaptive price zone from a double-smoothed rangeThe adaptive price zone is a channel around a short-term double-smoothed exponential moving average, so the bands can track recent fluctuations with less lag than an equally weighted average.
All readings on this track · 36 readings
  1. 1986A futures fade as one range, order, and secrecy procedure
  2. 1992Constructing the mass-index range-reversal procedure
  3. 1993Switch trend following and mean reversion with an equity-curve filter
  4. 1994Evaluating weekly trend-following and mean-reversion timing rules
  5. 1996Dual-horizon bands for a precious-metals cash switch
  6. 1997Constructing a moving regression oscillator
  7. 1997Regime-dependent long and short rules in mechanical systems
  8. 2002A same-session pair book with a morning-fixed volatility envelope
  9. 2004Combining noncorrelated trend and reversion systems
  10. 2004Failed-breakout overlays on trending markets
  11. 2004Rank rotation after a path split, then Robustness testing
  12. 2004Range-bound tape as a filter for trend and oscillator rules
  13. 2005A moving-average short pullback that is only in scope in a decline
  14. 2006Constructing an adaptive price zone from a double-smoothed range
  15. 2007Two-period relative strength index versus a one-week universe baseline
  16. 2008Building ETF mean-reversion entries with a two-bar washout
  17. 2008Rebuild a short-period stochastic as a premier stochastic oscillator
  18. 2008A three-market regime map for equity bounces and dollar cycles
  19. 2009Option trade adjustment as one testable procedure
  20. 2010Implied volatility as a May 2010 market-regime lab for the S&P 500
  21. 2011Treat a large one-day move as a classified event
  22. 2011Long-call exits, volatility regimes, and spread assignment
  23. 2011Pairing same-horizon oscillators with a walk filter
  24. 2012Two-bar band extreme entries with trailing stops
  25. 2012An eight-month average as a monthly gate for high-yield bonds
  26. 2014Complete the checklist before the trade
  27. 2014Coded rules should face one test, not a kinder sample
  28. 2015Build a mean-reversion basket from one correlation path
  29. 2015Index dip reversion is horizon and regime dependent
  30. 2016Treat the end of a trend as a handoff, not a broken system
  31. 2017A testable half-swing pullback for trend continuation
  32. 2017Evaluating four swing detection rules for mean reversion
  33. 2018Intraday breakout and mean reversion as one rule set
  34. 2018Evaluating rare consecutive-close mean-reversion entries
  35. 2020Moving-average baselines, price vetoes, and mean reversion
  36. 2020Two-dimensional FX scaling for trend and reversal systems
By fieldTrend and mean reversion93 readingsBy year2005104 readings
All 43 readings tagged Mean reversion
Also on Mean reversion5 readings
1992Constructing the mass-index range-reversal procedure1994Evaluating weekly trend-following and mean-reversion timing rules1996Dual-horizon bands for a precious-metals cash switch2008Building ETF mean-reversion entries with a two-bar washout2010Implied volatility as a May 2010 market-regime lab for the S&P 500