The Mean Reversion Strategy
Using computer programs to trade quickly based on specific criteria, algorithmic trading helps financial advisors and investors execute orders fast when a particular stock reaches a desired price or drops below a specific price. The criteria can be based on a variety of aspects including stock prices or certain market conditions. There are many different algorithmic trading strategies that are used and, depending on the goal of the trader, can either produce long-term results or short-term results.
AlpaDroid is an elite investment portfolio management tool that uses a combination of algorithmic trading strategies to help predict the market by following trends. By doing this, we are able to help advisors analyze, construct, and compare portfolios. Furthermore, we provide investors the opportunity to optimize returns by moving to where the money is. To learn more about how we at AlphaDroid can help investors make big returns, visit our website today!
What Is The Mean Reversion Strategy?
The second most common algorithmic trading strategy used by financial advisors and investors next to the momentum strategy is the mean reversion strategy. Contrary to the momentum strategy that assumes the prices will continue climbing in the same direction, the mean reversion predicts that the prices will revert back towards the mean or the average. In other words, mean reversion believes stocks tend to even out over time.
Take for instance a sports team. If a team has an incredible game and scores an unusually high amount of points, it is likely that the next game they play will be closer to the average score they usually obtain. The same goes for stocks. If a stock sees a major drop, there’s usually a good chance that it will return to its normal level in time. If you have questions about this strategy or want to try our award-winning investment algorithms, contact us today!
How Is It Used?
When using the mean reversion strategy, traders will look for extreme events where stocks either drop or increase substantially. A simple mean reversion strategy would be to buy a stock after it takes a major dip in the market, betting that it will return back to its average.
In this industry, it is hard to say anything is certain due to unpredictable events that occur on the market. For example, sometimes when a stock drops a significant amount on any given day, there is a chance that it will continue to drop the next day. Even so, mean reversion is a great concept that financial advisors, investors, and traders can use to build their trading strategies around. Using this strategy, they are able to purchase assets when they will be traded at a lower cost. When the stock begins to return back to its average state or reaches past the average, they can sell that asset.
Why You Should Use AlphaDroid
AlphaDroid levels the playing field with Wall Street by putting the power of award-winning investment algorithms in your hands. Our trading strategies consist of a selection of up to 12 ticker symbols with a few trading rules, crash protection options, and performance testing options. We also have worked long and hard to create successful solutions to investment risk by creating our StormGuard algorithm, providing charts that have eight different measures of risk, and teaching our portfolio design for Conquering the Seven Faces of Risk.
If you are interested in learning more about AlphaDroid or want more information on how it can help financial advisors and investors achieve desirable returns, visit our website today or give us a call. Our professional staff is available to explain our approach in more depth and answer any questions you have.
