PROTECTED SOURCE SCRIPT
DM Mean Reversion w/ Checklist table
CALL (Long)
Take CALL trades when ALL are true:
Price is above 200 SMA
RSI(2) is below 5
VIX is below 25
VIX is falling
Meaning:
Fear is low and decreasing → good environment for upside mean-reversion.
PUT (Short) – Final Rules
Take PUT trades when ALL are true:
Price is below 200 SMA
RSI(2) is above 95
VIX is between 25 and 30
VIX is rising
Meaning:
Fear exists, is increasing, but hasn’t turned into panic yet.
Universal Block Rule
If VIX is above 30 → NO TRADES at all
Because panic destroys mean-reversion edges.
_________________________________________________________________________________
The Psychology Behind Mean Reversion Strategy
Strategy is built on human behavior, not just math.
It’s designed to exploit how traders overreact emotionally.
1. RSI(2) – The Emotion Meter
What it means psychologically:
RSI(2) doesn’t measure trend —
it measures emotional exhaustion.
When:
• RSI(2) < 5 → Market is panic-selling short term
• RSI(2) > 95 → Market is panic-buying short term
Humans don’t trade logically. They:
Chase
Panic
Overreact to short-term movement
This strategy does the opposite.
It says:
Everyone is emotional right now.
I’m going to wait until their emotion is extreme, then fade it.”
That’s contrarian psychology.
2. 200 SMA – Crowd Bias Filter
This line separates:
Long-term belief
From short-term noise
Psychologically:
When price is above the 200 SMA
→ The market believes it's in a bull environment
When price is below the 200 SMA
→ The market believes it's in a bearish environment
Your strategy respects that belief.
You’re not fighting the big crowd
You’re only fading the small emotional moves within it.
That’s very important.
3. 5 SMA – Short-Term Reversion Trigger
This is your mean line.
Psychologically:
When price stretches far from the 5 SMA,
it represents short-term imbalance.
Traders:
• Chase
• Overextend
• Get emotionally trapped
The mean (5 SMA) acts like a magnet.
Your exit uses this line because:
When price touches or crosses it
that emotional imbalance is usually gone.
4. ATR – Fear Distance
ATR measures how far the crowd is willing to move price.
Psychologically:
When volatility increases,
people are emotional
Stop loss distance must increase
Your ATR stop adapts to crowd fear intensity.
Low fear = tighter stops
High fear = wider stops
You're not using fixed numbers.
You're using fear measurement.
5. VIX – The Market's Fear Index
This is extremely important.
VIX shows collective fear levels across all traders.
Psychology:
VIX Level Crowd Emotion
Under 20 Calm / Confident
20–25 Mild stress
25–30 Building fear
30+ Panic mode
Mean reversion works best when:
Fear exists
But panic is NOT extreme
Because in panic → people act irrational longer.
Your logic filters those periods out.
6. Your Strategy Psychology in One Sentence
Your strategy profits from:
Short-term emotional overreactions
Inside longer-term structural bias
While avoiding high-panic environments
You're trading:
Not price
Not indicators
But human stress behavior.
The Mental Model to Remember
Imagine:
RSI(2) = person panicking
200 SMA = direction of the crowd
5 SMA = emotional center
ATR = how scared they are
VIX = how stressed the entire market is
You’re not predicting price.
You’re exploiting fear.
27 minutes ago
Release Notes
CALL (Long)
Take CALL trades when ALL are true:
Price is above 200 SMA
RSI(2) is below 5
VIX is below 25
VIX is falling
Meaning:
Fear is low and decreasing → good environment for upside mean-reversion.
PUT (Short) – Final Rules
Take PUT trades when ALL are true:
Price is below 200 SMA
RSI(2) is above 95
VIX is between 25 and 30
VIX is rising
Meaning:
Fear exists, is increasing, but hasn’t turned into panic yet.
Universal Block Rule
If VIX is above 30 → NO TRADES at all
Because panic destroys mean-reversion edges.
_________________________________________________________________________________
The Psychology Behind Mean Reversion Strategy
Strategy is built on human behavior, not just math.
It’s designed to exploit how traders overreact emotionally.
1. RSI(2) – The Emotion Meter
What it means psychologically:
RSI(2) doesn’t measure trend —
it measures emotional exhaustion.
When:
• RSI(2) < 5 → Market is panic-selling short term
• RSI(2) > 95 → Market is panic-buying short term
Humans don’t trade logically. They:
Chase
Panic
Overreact to short-term movement
This strategy does the opposite.
It says:
Everyone is emotional right now.
I’m going to wait until their emotion is extreme, then fade it.”
That’s contrarian psychology.
2. 200 SMA – Crowd Bias Filter
This line separates:
Long-term belief
From short-term noise
Psychologically:
When price is above the 200 SMA
→ The market believes it's in a bull environment
When price is below the 200 SMA
→ The market believes it's in a bearish environment
Your strategy respects that belief.
You’re not fighting the big crowd
You’re only fading the small emotional moves within it.
That’s very important.
3. 5 SMA – Short-Term Reversion Trigger
This is your mean line.
Psychologically:
When price stretches far from the 5 SMA,
it represents short-term imbalance.
Traders:
• Chase
• Overextend
• Get emotionally trapped
The mean (5 SMA) acts like a magnet.
Your exit uses this line because:
When price touches or crosses it
that emotional imbalance is usually gone.
4. ATR – Fear Distance
ATR measures how far the crowd is willing to move price.
Psychologically:
When volatility increases,
people are emotional
Stop loss distance must increase
Your ATR stop adapts to crowd fear intensity.
Low fear = tighter stops
High fear = wider stops
You're not using fixed numbers.
You're using fear measurement.
5. VIX – The Market's Fear Index
This is extremely important.
VIX shows collective fear levels across all traders.
Psychology:
VIX Level Crowd Emotion
Under 20 Calm / Confident
20–25 Mild stress
25–30 Building fear
30+ Panic mode
Mean reversion works best when:
Fear exists
But panic is NOT extreme
Because in panic → people act irrational longer.
Your logic filters those periods out.
6. Your Strategy Psychology in One Sentence
Your strategy profits from:
Short-term emotional overreactions
Inside longer-term structural bias
While avoiding high-panic environments
You're trading:
Not price
Not indicators
But human stress behavior.
The Mental Model to Remember
Imagine:
RSI(2) = person panicking
200 SMA = direction of the crowd
5 SMA = emotional center
ATR = how scared they are
VIX = how stressed the entire market is
You’re not predicting price.
You’re exploiting fear.
8 minutes ago
Release Notes
CALL (Long)
Take CALL trades when ALL are true:
Price is above 200 SMA
RSI(2) is below 5
VIX is below 25
VIX is falling
Meaning:
Fear is low and decreasing → good environment for upside mean-reversion.
PUT (Short) – Final Rules
Take PUT trades when ALL are true:
Price is below 200 SMA
RSI(2) is above 95
VIX is between 25 and 30
VIX is rising
Meaning:
Fear exists, is increasing, but hasn’t turned into panic yet.
Universal Block Rule
If VIX is above 30 → NO TRADES at all
Because panic destroys mean-reversion edges.
_________________________________________________________________________________
The Psychology Behind Mean Reversion Strategy
Strategy is built on human behavior, not just math.
It’s designed to exploit how traders overreact emotionally.
1. RSI(2) – The Emotion Meter
What it means psychologically:
RSI(2) doesn’t measure trend —
it measures emotional exhaustion.
When:
• RSI(2) < 5 → Market is panic-selling short term
• RSI(2) > 95 → Market is panic-buying short term
Humans don’t trade logically. They:
Chase
Panic
Overreact to short-term movement
This strategy does the opposite.
It says:
Everyone is emotional right now.
I’m going to wait until their emotion is extreme, then fade it.”
That’s contrarian psychology.
2. 200 SMA – Crowd Bias Filter
This line separates:
Long-term belief
From short-term noise
Psychologically:
When price is above the 200 SMA
→ The market believes it's in a bull environment
When price is below the 200 SMA
→ The market believes it's in a bearish environment
Your strategy respects that belief.
You’re not fighting the big crowd
You’re only fading the small emotional moves within it.
That’s very important.
3. 5 SMA – Short-Term Reversion Trigger
This is your mean line.
Psychologically:
When price stretches far from the 5 SMA,
it represents short-term imbalance.
Traders:
• Chase
• Overextend
• Get emotionally trapped
The mean (5 SMA) acts like a magnet.
Your exit uses this line because:
When price touches or crosses it
that emotional imbalance is usually gone.
4. ATR – Fear Distance
ATR measures how far the crowd is willing to move price.
Psychologically:
When volatility increases,
people are emotional
Stop loss distance must increase
Your ATR stop adapts to crowd fear intensity.
Low fear = tighter stops
High fear = wider stops
You're not using fixed numbers.
You're using fear measurement.
5. VIX – The Market's Fear Index
This is extremely important.
VIX shows collective fear levels across all traders.
Psychology:
VIX Level Crowd Emotion
Under 20 Calm / Confident
20–25 Mild stress
25–30 Building fear
30+ Panic mode
Mean reversion works best when:
Fear exists
But panic is NOT extreme
Because in panic → people act irrational longer.
Your logic filters those periods out.
6. Your Strategy Psychology in One Sentence
Your strategy profits from:
Short-term emotional overreactions
Inside longer-term structural bias
While avoiding high-panic environments
You're trading:
Not price
Not indicators
But human stress behavior.
The Mental Model to Remember
Imagine:
RSI(2) = person panicking
200 SMA = direction of the crowd
5 SMA = emotional center
ATR = how scared they are
VIX = how stressed the entire market is
You’re not predicting price.
You’re exploiting fear.
17 minutes ago
Release Notes
CALL (Long)
Take CALL trades when ALL are true:
Price is above 200 SMA
RSI(2) is below 5
VIX is below 25
VIX is falling
Meaning:
Fear is low and decreasing → good environment for upside mean-reversion.
PUT (Short) – Final Rules
Take PUT trades when ALL are true:
Price is below 200 SMA
RSI(2) is above 95
VIX is between 25 and 30
VIX is rising
Meaning:
Fear exists, is increasing, but hasn’t turned into panic yet.
Universal Block Rule
If VIX is above 30 → NO TRADES at all
Because panic destroys mean-reversion edges.
_________________________________________________________________________________
The Psychology Behind Mean Reversion Strategy
Strategy is built on human behavior, not just math.
It’s designed to exploit how traders overreact emotionally.
1. RSI(2) – The Emotion Meter
What it means psychologically:
RSI(2) doesn’t measure trend —
it measures emotional exhaustion.
When:
• RSI(2) < 5 → Market is panic-selling short term
• RSI(2) > 95 → Market is panic-buying short term
Humans don’t trade logically. They:
Chase
Panic
Overreact to short-term movement
This strategy does the opposite.
It says:
Everyone is emotional right now.
I’m going to wait until their emotion is extreme, then fade it.”
That’s contrarian psychology.
2. 200 SMA – Crowd Bias Filter
This line separates:
Long-term belief
From short-term noise
Psychologically:
When price is above the 200 SMA
→ The market believes it's in a bull environment
When price is below the 200 SMA
→ The market believes it's in a bearish environment
Your strategy respects that belief.
You’re not fighting the big crowd
You’re only fading the small emotional moves within it.
That’s very important.
3. 5 SMA – Short-Term Reversion Trigger
This is your mean line.
Psychologically:
When price stretches far from the 5 SMA,
it represents short-term imbalance.
Traders:
• Chase
• Overextend
• Get emotionally trapped
The mean (5 SMA) acts like a magnet.
Your exit uses this line because:
When price touches or crosses it
that emotional imbalance is usually gone.
4. ATR – Fear Distance
ATR measures how far the crowd is willing to move price.
Psychologically:
When volatility increases,
people are emotional
Stop loss distance must increase
Your ATR stop adapts to crowd fear intensity.
Low fear = tighter stops
High fear = wider stops
You're not using fixed numbers.
You're using fear measurement.
5. VIX – The Market's Fear Index
This is extremely important.
VIX shows collective fear levels across all traders.
Psychology:
VIX Level Crowd Emotion
Under 20 Calm / Confident
20–25 Mild stress
25–30 Building fear
30+ Panic mode
Mean reversion works best when:
Fear exists
But panic is NOT extreme
Because in panic → people act irrational longer.
Your logic filters those periods out.
6. Your Strategy Psychology in One Sentence
Your strategy profits from:
Short-term emotional overreactions
Inside longer-term structural bias
While avoiding high-panic environments
You're trading:
Not price
Not indicators
But human stress behavior.
The Mental Model to Remember
Imagine:
RSI(2) = person panicking
200 SMA = direction of the crowd
5 SMA = emotional center
ATR = how scared they are
VIX = how stressed the entire market is
You’re not predicting price.
You’re exploiting fear.
__________________________________________________________________
A close above or below the 5-SMA only means the mean reversion is complete, not that the move itself is over.
There’s a big difference.
What your SMA 5 exit actually means
It means:
Price has snapped back to its short-term average.
That’s it.
It does NOT mean:
The trend is over
Momentum will stop
Price will reverse again
It only means:
The reversion target has been reached.
Why price often keeps moving after
In strong markets, especially end-of-day or high momentum sessions:
Price often hits the short-term mean
Exits your trade
Then continues moving in the same direction
Example:
You long after RSI=2 oversold
Price reverts to SMA 5
You exit
But the trend is strong → price keeps climbing.
And that’s normal and expected behavior.
The system is not trying to capture trends.
It is trying to capture:
The snap-back move from extreme conditions.
Your system purpose (important)
Strategy is built for:
Small, high-probability mean reversion profits
Not trend following
Not momentum extension
Not predicting tops/bottoms
By exiting at SMA 5, you’re saying:
“I’m only here for the bounce — nothing more.
That keeps:
Drawdown lower
Holding time shorter
Win rate more consistent
Even if that means leaving money on the table sometimes (which every good system does).
If you ever wanted to let winners run
You could add things like:
Trend filter extension (hold if above 200 SMA)
RSI exit condition
A trailing stop instead of SMA 5
But that changes the nature of your system from:
Mean Reversion → Hybrid Trend System
Bottom line
You’re thinking about this correctly:
SMA 5 crossing = reversion completed
Price can still continue further
Your system exits on purpose to capture the controlled part
Take CALL trades when ALL are true:
Price is above 200 SMA
RSI(2) is below 5
VIX is below 25
VIX is falling
Meaning:
Fear is low and decreasing → good environment for upside mean-reversion.
PUT (Short) – Final Rules
Take PUT trades when ALL are true:
Price is below 200 SMA
RSI(2) is above 95
VIX is between 25 and 30
VIX is rising
Meaning:
Fear exists, is increasing, but hasn’t turned into panic yet.
Universal Block Rule
If VIX is above 30 → NO TRADES at all
Because panic destroys mean-reversion edges.
_________________________________________________________________________________
The Psychology Behind Mean Reversion Strategy
Strategy is built on human behavior, not just math.
It’s designed to exploit how traders overreact emotionally.
1. RSI(2) – The Emotion Meter
What it means psychologically:
RSI(2) doesn’t measure trend —
it measures emotional exhaustion.
When:
• RSI(2) < 5 → Market is panic-selling short term
• RSI(2) > 95 → Market is panic-buying short term
Humans don’t trade logically. They:
Chase
Panic
Overreact to short-term movement
This strategy does the opposite.
It says:
Everyone is emotional right now.
I’m going to wait until their emotion is extreme, then fade it.”
That’s contrarian psychology.
2. 200 SMA – Crowd Bias Filter
This line separates:
Long-term belief
From short-term noise
Psychologically:
When price is above the 200 SMA
→ The market believes it's in a bull environment
When price is below the 200 SMA
→ The market believes it's in a bearish environment
Your strategy respects that belief.
You’re not fighting the big crowd
You’re only fading the small emotional moves within it.
That’s very important.
3. 5 SMA – Short-Term Reversion Trigger
This is your mean line.
Psychologically:
When price stretches far from the 5 SMA,
it represents short-term imbalance.
Traders:
• Chase
• Overextend
• Get emotionally trapped
The mean (5 SMA) acts like a magnet.
Your exit uses this line because:
When price touches or crosses it
that emotional imbalance is usually gone.
4. ATR – Fear Distance
ATR measures how far the crowd is willing to move price.
Psychologically:
When volatility increases,
people are emotional
Stop loss distance must increase
Your ATR stop adapts to crowd fear intensity.
Low fear = tighter stops
High fear = wider stops
You're not using fixed numbers.
You're using fear measurement.
5. VIX – The Market's Fear Index
This is extremely important.
VIX shows collective fear levels across all traders.
Psychology:
VIX Level Crowd Emotion
Under 20 Calm / Confident
20–25 Mild stress
25–30 Building fear
30+ Panic mode
Mean reversion works best when:
Fear exists
But panic is NOT extreme
Because in panic → people act irrational longer.
Your logic filters those periods out.
6. Your Strategy Psychology in One Sentence
Your strategy profits from:
Short-term emotional overreactions
Inside longer-term structural bias
While avoiding high-panic environments
You're trading:
Not price
Not indicators
But human stress behavior.
The Mental Model to Remember
Imagine:
RSI(2) = person panicking
200 SMA = direction of the crowd
5 SMA = emotional center
ATR = how scared they are
VIX = how stressed the entire market is
You’re not predicting price.
You’re exploiting fear.
27 minutes ago
Release Notes
CALL (Long)
Take CALL trades when ALL are true:
Price is above 200 SMA
RSI(2) is below 5
VIX is below 25
VIX is falling
Meaning:
Fear is low and decreasing → good environment for upside mean-reversion.
PUT (Short) – Final Rules
Take PUT trades when ALL are true:
Price is below 200 SMA
RSI(2) is above 95
VIX is between 25 and 30
VIX is rising
Meaning:
Fear exists, is increasing, but hasn’t turned into panic yet.
Universal Block Rule
If VIX is above 30 → NO TRADES at all
Because panic destroys mean-reversion edges.
_________________________________________________________________________________
The Psychology Behind Mean Reversion Strategy
Strategy is built on human behavior, not just math.
It’s designed to exploit how traders overreact emotionally.
1. RSI(2) – The Emotion Meter
What it means psychologically:
RSI(2) doesn’t measure trend —
it measures emotional exhaustion.
When:
• RSI(2) < 5 → Market is panic-selling short term
• RSI(2) > 95 → Market is panic-buying short term
Humans don’t trade logically. They:
Chase
Panic
Overreact to short-term movement
This strategy does the opposite.
It says:
Everyone is emotional right now.
I’m going to wait until their emotion is extreme, then fade it.”
That’s contrarian psychology.
2. 200 SMA – Crowd Bias Filter
This line separates:
Long-term belief
From short-term noise
Psychologically:
When price is above the 200 SMA
→ The market believes it's in a bull environment
When price is below the 200 SMA
→ The market believes it's in a bearish environment
Your strategy respects that belief.
You’re not fighting the big crowd
You’re only fading the small emotional moves within it.
That’s very important.
3. 5 SMA – Short-Term Reversion Trigger
This is your mean line.
Psychologically:
When price stretches far from the 5 SMA,
it represents short-term imbalance.
Traders:
• Chase
• Overextend
• Get emotionally trapped
The mean (5 SMA) acts like a magnet.
Your exit uses this line because:
When price touches or crosses it
that emotional imbalance is usually gone.
4. ATR – Fear Distance
ATR measures how far the crowd is willing to move price.
Psychologically:
When volatility increases,
people are emotional
Stop loss distance must increase
Your ATR stop adapts to crowd fear intensity.
Low fear = tighter stops
High fear = wider stops
You're not using fixed numbers.
You're using fear measurement.
5. VIX – The Market's Fear Index
This is extremely important.
VIX shows collective fear levels across all traders.
Psychology:
VIX Level Crowd Emotion
Under 20 Calm / Confident
20–25 Mild stress
25–30 Building fear
30+ Panic mode
Mean reversion works best when:
Fear exists
But panic is NOT extreme
Because in panic → people act irrational longer.
Your logic filters those periods out.
6. Your Strategy Psychology in One Sentence
Your strategy profits from:
Short-term emotional overreactions
Inside longer-term structural bias
While avoiding high-panic environments
You're trading:
Not price
Not indicators
But human stress behavior.
The Mental Model to Remember
Imagine:
RSI(2) = person panicking
200 SMA = direction of the crowd
5 SMA = emotional center
ATR = how scared they are
VIX = how stressed the entire market is
You’re not predicting price.
You’re exploiting fear.
8 minutes ago
Release Notes
CALL (Long)
Take CALL trades when ALL are true:
Price is above 200 SMA
RSI(2) is below 5
VIX is below 25
VIX is falling
Meaning:
Fear is low and decreasing → good environment for upside mean-reversion.
PUT (Short) – Final Rules
Take PUT trades when ALL are true:
Price is below 200 SMA
RSI(2) is above 95
VIX is between 25 and 30
VIX is rising
Meaning:
Fear exists, is increasing, but hasn’t turned into panic yet.
Universal Block Rule
If VIX is above 30 → NO TRADES at all
Because panic destroys mean-reversion edges.
_________________________________________________________________________________
The Psychology Behind Mean Reversion Strategy
Strategy is built on human behavior, not just math.
It’s designed to exploit how traders overreact emotionally.
1. RSI(2) – The Emotion Meter
What it means psychologically:
RSI(2) doesn’t measure trend —
it measures emotional exhaustion.
When:
• RSI(2) < 5 → Market is panic-selling short term
• RSI(2) > 95 → Market is panic-buying short term
Humans don’t trade logically. They:
Chase
Panic
Overreact to short-term movement
This strategy does the opposite.
It says:
Everyone is emotional right now.
I’m going to wait until their emotion is extreme, then fade it.”
That’s contrarian psychology.
2. 200 SMA – Crowd Bias Filter
This line separates:
Long-term belief
From short-term noise
Psychologically:
When price is above the 200 SMA
→ The market believes it's in a bull environment
When price is below the 200 SMA
→ The market believes it's in a bearish environment
Your strategy respects that belief.
You’re not fighting the big crowd
You’re only fading the small emotional moves within it.
That’s very important.
3. 5 SMA – Short-Term Reversion Trigger
This is your mean line.
Psychologically:
When price stretches far from the 5 SMA,
it represents short-term imbalance.
Traders:
• Chase
• Overextend
• Get emotionally trapped
The mean (5 SMA) acts like a magnet.
Your exit uses this line because:
When price touches or crosses it
that emotional imbalance is usually gone.
4. ATR – Fear Distance
ATR measures how far the crowd is willing to move price.
Psychologically:
When volatility increases,
people are emotional
Stop loss distance must increase
Your ATR stop adapts to crowd fear intensity.
Low fear = tighter stops
High fear = wider stops
You're not using fixed numbers.
You're using fear measurement.
5. VIX – The Market's Fear Index
This is extremely important.
VIX shows collective fear levels across all traders.
Psychology:
VIX Level Crowd Emotion
Under 20 Calm / Confident
20–25 Mild stress
25–30 Building fear
30+ Panic mode
Mean reversion works best when:
Fear exists
But panic is NOT extreme
Because in panic → people act irrational longer.
Your logic filters those periods out.
6. Your Strategy Psychology in One Sentence
Your strategy profits from:
Short-term emotional overreactions
Inside longer-term structural bias
While avoiding high-panic environments
You're trading:
Not price
Not indicators
But human stress behavior.
The Mental Model to Remember
Imagine:
RSI(2) = person panicking
200 SMA = direction of the crowd
5 SMA = emotional center
ATR = how scared they are
VIX = how stressed the entire market is
You’re not predicting price.
You’re exploiting fear.
17 minutes ago
Release Notes
CALL (Long)
Take CALL trades when ALL are true:
Price is above 200 SMA
RSI(2) is below 5
VIX is below 25
VIX is falling
Meaning:
Fear is low and decreasing → good environment for upside mean-reversion.
PUT (Short) – Final Rules
Take PUT trades when ALL are true:
Price is below 200 SMA
RSI(2) is above 95
VIX is between 25 and 30
VIX is rising
Meaning:
Fear exists, is increasing, but hasn’t turned into panic yet.
Universal Block Rule
If VIX is above 30 → NO TRADES at all
Because panic destroys mean-reversion edges.
_________________________________________________________________________________
The Psychology Behind Mean Reversion Strategy
Strategy is built on human behavior, not just math.
It’s designed to exploit how traders overreact emotionally.
1. RSI(2) – The Emotion Meter
What it means psychologically:
RSI(2) doesn’t measure trend —
it measures emotional exhaustion.
When:
• RSI(2) < 5 → Market is panic-selling short term
• RSI(2) > 95 → Market is panic-buying short term
Humans don’t trade logically. They:
Chase
Panic
Overreact to short-term movement
This strategy does the opposite.
It says:
Everyone is emotional right now.
I’m going to wait until their emotion is extreme, then fade it.”
That’s contrarian psychology.
2. 200 SMA – Crowd Bias Filter
This line separates:
Long-term belief
From short-term noise
Psychologically:
When price is above the 200 SMA
→ The market believes it's in a bull environment
When price is below the 200 SMA
→ The market believes it's in a bearish environment
Your strategy respects that belief.
You’re not fighting the big crowd
You’re only fading the small emotional moves within it.
That’s very important.
3. 5 SMA – Short-Term Reversion Trigger
This is your mean line.
Psychologically:
When price stretches far from the 5 SMA,
it represents short-term imbalance.
Traders:
• Chase
• Overextend
• Get emotionally trapped
The mean (5 SMA) acts like a magnet.
Your exit uses this line because:
When price touches or crosses it
that emotional imbalance is usually gone.
4. ATR – Fear Distance
ATR measures how far the crowd is willing to move price.
Psychologically:
When volatility increases,
people are emotional
Stop loss distance must increase
Your ATR stop adapts to crowd fear intensity.
Low fear = tighter stops
High fear = wider stops
You're not using fixed numbers.
You're using fear measurement.
5. VIX – The Market's Fear Index
This is extremely important.
VIX shows collective fear levels across all traders.
Psychology:
VIX Level Crowd Emotion
Under 20 Calm / Confident
20–25 Mild stress
25–30 Building fear
30+ Panic mode
Mean reversion works best when:
Fear exists
But panic is NOT extreme
Because in panic → people act irrational longer.
Your logic filters those periods out.
6. Your Strategy Psychology in One Sentence
Your strategy profits from:
Short-term emotional overreactions
Inside longer-term structural bias
While avoiding high-panic environments
You're trading:
Not price
Not indicators
But human stress behavior.
The Mental Model to Remember
Imagine:
RSI(2) = person panicking
200 SMA = direction of the crowd
5 SMA = emotional center
ATR = how scared they are
VIX = how stressed the entire market is
You’re not predicting price.
You’re exploiting fear.
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A close above or below the 5-SMA only means the mean reversion is complete, not that the move itself is over.
There’s a big difference.
What your SMA 5 exit actually means
It means:
Price has snapped back to its short-term average.
That’s it.
It does NOT mean:
The trend is over
Momentum will stop
Price will reverse again
It only means:
The reversion target has been reached.
Why price often keeps moving after
In strong markets, especially end-of-day or high momentum sessions:
Price often hits the short-term mean
Exits your trade
Then continues moving in the same direction
Example:
You long after RSI=2 oversold
Price reverts to SMA 5
You exit
But the trend is strong → price keeps climbing.
And that’s normal and expected behavior.
The system is not trying to capture trends.
It is trying to capture:
The snap-back move from extreme conditions.
Your system purpose (important)
Strategy is built for:
Small, high-probability mean reversion profits
Not trend following
Not momentum extension
Not predicting tops/bottoms
By exiting at SMA 5, you’re saying:
“I’m only here for the bounce — nothing more.
That keeps:
Drawdown lower
Holding time shorter
Win rate more consistent
Even if that means leaving money on the table sometimes (which every good system does).
If you ever wanted to let winners run
You could add things like:
Trend filter extension (hold if above 200 SMA)
RSI exit condition
A trailing stop instead of SMA 5
But that changes the nature of your system from:
Mean Reversion → Hybrid Trend System
Bottom line
You’re thinking about this correctly:
SMA 5 crossing = reversion completed
Price can still continue further
Your system exits on purpose to capture the controlled part
Script protégé
Ce script est publié en source fermée. Cependant, vous pouvez l'utiliser librement et sans aucune restriction – pour en savoir plus, cliquez ici.
Clause de non-responsabilité
Les informations et publications ne sont pas destinées à être, et ne constituent pas, des conseils ou recommandations financiers, d'investissement, de trading ou autres fournis ou approuvés par TradingView. Pour en savoir plus, consultez les Conditions d'utilisation.
Script protégé
Ce script est publié en source fermée. Cependant, vous pouvez l'utiliser librement et sans aucune restriction – pour en savoir plus, cliquez ici.
Clause de non-responsabilité
Les informations et publications ne sont pas destinées à être, et ne constituent pas, des conseils ou recommandations financiers, d'investissement, de trading ou autres fournis ou approuvés par TradingView. Pour en savoir plus, consultez les Conditions d'utilisation.