Simple Mean Reversion | Foreign Exchange EA Download- MT4/MT5 Resources

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Whether you are new to the forum or an old member, please continue reading here, I guarantee you will not be disappointed!
From my perspective, this thread is a natural continuation of the thread "Higher edges within a single candlestick" where I intend to share with you some of my findings regarding this concept.

As I commented in the original thread, I believe we can only create and apply multiple strategies by using the information present within a single candlestick.
However, I want to stay away from menorahs as tools, simply because we don't need menorahs. I think they are just unnecessary distractions.
We will focus on the raw data.
That's why I want to focus and draw your attention to the " natural trading cycles . Mainly daily cycles and to some extent weekly cycles.

Later in this article I will try to explain the relationship between time and price that exists within each trading cycle. These relationships are the basis for the strategies you'll learn in this thread.

So, let’s get started!

First, if we want to have a clear understanding, we must define the main terms.

time! All times in this thread are based on GMT+2. This is my time zone and the unofficial time zone where we determine the start and end of each day in the Forex market.

Most reputable brokers use GMT+2 on their servers. Therefore, 00:00 GMT+2 is right in the middle of the least active period. (After US close, before Asian open) This is the beginning of the daily candle.

What is a " trading cycle "? It's very simple. A trading cycle constitutes a fixed period of time during which our trading activity is essentially uninterrupted. Each cycle is separated from the others by a period of very low or no trading activity.
In the Forex market we only have 2 natural cycles. Daily and weekly.
The daily cycle starts at 01:00 and ends at 23:00 every day.
The weekly cycle starts at 01:00 on Monday and ends at 23:00 on Friday.
In our strategy we treat each cycle as an independent event!

high and low . When I say high or low, I mean the highest or lowest price of the current cycle.
scope . The current cycle's range is simple (high-low).
Medium – This is the middle of the range. Or, medium = high - (range * 0.5); or (highest price + lowest price) / 2;
Square Root(t) - This is the square root of time. We don't need this at the moment. But we will use this calculation later in the second layer of the strategy. (We add some more complex optimizations).

So let’s go over the basics of this strategy. I use daily cycles, but you can apply the same rules to weekly.
First we create the frame. For simplicity, in this example we assume that the period starts and ends at 00:00.

Let's imagine a rectangular plane.
Vertical size is a variable and is determined by price. (scope)
The horizontal size is fixed, equal to 24 hours in our example.
Through this plane, we continuously track the positions (coordinates) of the current price, the highest price, the lowest price, and the middle price.
Here you can see a very common example of completing a daily cycle.

Note that we also track the current time's position relative to the intermediate period. In the basic model we use 12:00. Later, when we apply the second layer of the system, we can move this value backward or forward to optimize the strategy.
The position in the "middle" of the cycle partly determines how aggressive the strategy will be. The further away from the starting point, the higher the risk. Various implications in terms of probability distributions will emerge from this. (I will explain the mechanism later)

Now let's see how to make use of all this information. Remember that later we can modify some parameters for better optimization, but the main structure of the system always remains the same!

The following are basic trading rules. I am explaining this only for short positions. Buying is the same, but opposite.

We divided each location into cells. These locations are constructed using an inverted pyramid structure. We establish positions by "scaling" to maximum size. (Do not exceed maximum value). The maximum value depends on account size, risk appetite, and a few other factors.

1. Initial signal. (if there are no open positions)
We sell 1 unit when the current price is equal to the highest price of the current period and the current time is below the middle of the period. (Before 12:00 in our example)

2. Auxiliary signal. (location established).
If the current price is higher than the previous entry price + X, then we add 2 units .
X is the variable we determine through optimization. As a standard for the first tier, we can use 10% ADR. In the second layer, we can add nonlinear calculations using sqrt(t). But we don't need this at the moment. You just need to understand the basic structure.
So with this system we build the inverted pyramid.
Initial opening 1
If the price is higher than 1+X, then we add 2.
If the price is higher than 2+X, then we add 3.
We can keep adding until we reach the maximum position size. 1+2+3+4+5…………

3. Close the position.
If we have open positions and the current time is before the middle of the cycle (12:00), then we look for a correction in the mid-range. (50% retracement from high)
If the current time is after 12 o'clock, then we will look for the 25% retracement of the relative high.
In the second layer we will add more precise and continuous calculations using non-linear formulas. It's not necessary yet.
Regardless of the outcome of the trading period, all positions are closed at the end of the period. I'll take 00:00 or 23:00 as an example.
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OK This is the basis of strategy! Even with these simple rules, this strategy will produce at least 85-90% of profitable days. Or nine out of ten. The average trade-by-trade RR is higher than 1:1.5 (or close to 2), and the win rate is definitely over 60%.

However, when we add a second layer and do all the optimizations and more precise calculations, we can increase the success rate to over 98% of profitable days.

You can also download indicators for tracking periods here. It is a very useful tool for visual/manual backtesting. At least I use it regularly.

Who knows, if you dig deep enough, maybe you'll discover other secret strategies based on individual candlesticks. As I said, there are at least 2 more.


You can expect more details in the next article. (When I have time).
I guarantee you that by the time I finish this article, everyone reading this will have the opportunity to make money with this system!