Jaws Mean Reversion [Strategy]

The Jaws Mean Reversion [Strategy] indicator is a quantitative tool designed to identify oversold conditions by measuring the distance between short-term and long-term moving averages to capture mean reversion opportunities.

Usage

The strategy is primarily used to enter long positions when price momentum deviates significantly below its recent average. Users can look for the "Buy MA Threshold" plot to visualize where the entry condition triggers.

• Entry: A buy signal is generated when the Small Moving Average crosses below a specific percentage threshold of the Big Moving Average.
• Exit: The position is closed when the Small Moving Average crosses back over the Big Moving Average, signaling that the mean reversion has been completed.

Because this strategy focuses on specific oversold extremes, signal frequency may be low on certain assets. Users can increase signal frequency by lowering the "Percent below to buy %" value or adjusting the moving average periods.

Details

This strategy is an implementation of PJ Sutherland's Jaws Mean Reversion algorithm. It operates on the principle that prices tend to return to a central mean after an aggressive move away from it. By using two Simple Moving Averages (SMA), the script filters out minor fluctuations and only enters when the short-term trend (Small MA) is stretched significantly below the longer-term trend (Big MA).

Settings

• Source: Determines the price data used for the moving average calculations (default is Close).
• Small Moving Average: Sets the period for the short-term SMA used to track immediate price action.
• Big Moving Average: Sets the period for the longer-term SMA used as the baseline mean.
• Percent below to buy %: Defines the percentage distance below the Big Moving Average that the Small Moving Average must reach to trigger a buy entry.

FAQ

How do I adjust the sensitivity of the signals?

You can adjust the "Percent below to buy %" setting; a smaller percentage will result in more frequent signals, while a larger percentage will require a more significant price drop to trigger a trade.

What timeframes are best for this strategy?

While it can be applied to any timeframe, mean reversion strategies are often utilized on daily or hourly charts to capture significant price extensions.

How can I access this tool?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.