• Investing
  • Stock
Round Table Thoughts
  • Economy
  • Editor’s Pick
Home Stock Putting a Mean-Reversion Strategy Into Practice
Stock

Putting a Mean-Reversion Strategy Into Practice

by January 8, 2024
by January 8, 2024 0 comment
Share
0
FacebookTwitterPinterestWhatsapp

Mean-reversion strategies typically buy stocks when they are oversold, which means catching the falling knife. These declines are often rather sharp, but the odds favor some sort of bounce after reaching an oversold extreme. While there are no guarantees, chartists can mitigate risk by insuring that the stock is still in a long-term uptrend. Today’s chart will show one such setup. Note that this stock is currently a setup for the mean-reversion trading strategy for System Trader at TrendInvestorPro.

The chart below shows Cadence Design System (CDNS) surging to new highs with a big move in November and trading above its rising 200-day SMA (long-term uptrend). CDNS recently fell below the mid December low with an 8% decline the last two weeks. Despite breaking the mid December low with a sharp decline, the stock is trading in a support-reversal zone marked by broken resistance and the 50-62 percent retracements (blue shading). I explained the significance of support-reversal zones in Saturday’s commentary featuring Apple (AAPL).

We do not need an indicator to understand that a stock is short-term oversold after an 8% decline in two weeks. Nevertheless, we can quantify oversold conditions using RSI(10) which moved below 30 (red shading). CDNS is both oversold and weak as long as RSI remains below 30. This is important to note because stocks can become oversold and remain oversold. An RSI move above 30 would signal improving momentum and could lead to a bounce. This occurred in mid August.

The System Trader offering at TrendInvestorPro runs a mean-reversion strategy that trades stocks in the Russell 1000. This strategy identifies short-term oversold stocks, buys into weakness and sells on the first bounce. It is a short-term hit-and-run strategy that seeks to complement our momentum-rotation strategies. Click here to see performance metrics and learn more.

//////////////////////////////////////////////////

You Might Also Like
  • Stock Market Pushes Higher, But Is There a Bond Market Surprise Brewing?
  • Moxie Indicator Alerts: Predicting Yesterday’s Market Pullback!
  • Three Reasons to Consider Gold
  • Sector Spotlight: S&P 500 – Consumer Discretionary Sector Holds the Key
Share
0
FacebookTwitterPinterestWhatsapp

previous post
‘Stakes are high’ in the Alaska Airlines flight inquiry, NTSB chair says
next post
The Hoax of Modern Finance – Part 4: Misuse of Statistics and Other Controversial Practices

You may also like

The Ord Oracle May 30, 2023

May 31, 2023

Mag7 ETF Leads as Bullish Pattern Forms – Charting the...

January 24, 2025

After a 29% Bounce, Can SMCI Reclaim Its Former Glory?

December 3, 2024

Week Ahead: NIFTY Forms A Key Support; These Sectors To...

September 10, 2023

Bearish Triad: Stock Market Indexes and Market Breadth Test Important...

October 22, 2023

A Practical Options Strategy to Trade Home Depot

June 4, 2024

Quantum Computing: Top Stocks You Should Watch Now!

January 17, 2025

RRG-Velocity jumping on XLF tail

August 23, 2024

Gold Prices: De-Dollarization, Inflation, and $3,000 Gold—What You Need to...

January 14, 2025

Commodities Trade Analysis: Aluminum

January 10, 2024

    Stay updated with the latest news, exclusive offers, and special promotions. Sign up now and be the first to know! As a member, you'll receive curated content, insider tips, and invitations to exclusive events. Don't miss out on being part of something special.


    By opting in you agree to receive emails from us and our affiliates. Your information is secure and your privacy is protected.

    Recent Posts

    • Krispy Kreme stock plunges after doughnut chain pauses McDonald’s rollout, pulls outlook

      May 8, 2025
    • Don’t Buy Robinhood Stock… Until You See This Chart Setup

      May 8, 2025
    • UnitedHealthcare sued by shareholders over reaction to CEO’s killing

      May 8, 2025
    • The Unpredictable Stock Market: How to Make Sense of It

      May 8, 2025
    • AMD CEO calls China a ‘large opportunity’ and warns against strict U.S. chip controls

      May 7, 2025

    Popular Posts

    • 1

      Trump-era China sanctions ended by Biden may be...

      June 27, 2024 2,632 views
    • 2

      Walz’s honeymoon with China gets fresh scrutiny as...

      August 9, 2024 2,339 views
    • 3

      Biden appointee played key role in recruiting Chinese...

      June 25, 2024 2,320 views
    • 4

      Shein’s global ambitions leaves some cybersecurity experts fearful...

      July 10, 2024 2,302 views
    • 5

      Harris VP pick spent years promoting research facility...

      August 29, 2024 2,186 views

    Categories

    • Economy (7,009)
    • Editor's Pick (2,066)
    • Investing (538)
    • Stock (2,530)

    Popular Posts

    • 1

      Trump-era China sanctions ended by Biden may be revived under new House GOP bill

      June 27, 2024
    • 2

      Walz’s honeymoon with China gets fresh scrutiny as Harris camp blasts ‘lying’ critics

      August 9, 2024
    • 3

      Biden appointee played key role in recruiting Chinese businesses to Delaware: ‘Longtime friends’

      June 25, 2024
    • 4

      Shein’s global ambitions leaves some cybersecurity experts fearful of Chinese spy threats

      July 10, 2024
    • 5

      Harris VP pick spent years promoting research facility that collaborated with ‘Chinese military company’

      August 29, 2024

    Latest News

    • Krispy Kreme stock plunges after doughnut chain pauses McDonald’s rollout,...

      May 8, 2025
    • Don’t Buy Robinhood Stock… Until You See This Chart Setup

      May 8, 2025
    • UnitedHealthcare sued by shareholders over reaction to CEO’s killing

      May 8, 2025

    Categories

    • Economy (7,009)
    • Editor's Pick (2,066)
    • Investing (538)
    • Stock (2,530)

    Disclaimer: RoundTableThoughts.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    Copyright © 2024 RoundTableThoughts.com. All Rights Reserved.

    Round Table Thoughts
    • Investing
    • Stock
    Round Table Thoughts
    • Economy
    • Editor’s Pick

    Read alsox

    Tech vs Semiconductors: Which One Should...

    October 9, 2024

    Expect A Very Strong Earnings Report...

    July 6, 2023

    Striking While The Iron Is HOT!

    October 15, 2023
    Sign In

    Keep me signed in until I sign out

    Forgot your password?

    Password Recovery

    A new password will be emailed to you.

    Have received a new password? Login here