DM Mean Reversion w/ VIX Ver2

avant-hier

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.

avant-hier

Notes de version

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.

avant-hier

Notes de version

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.