Monte Carlo Mean Reversion Heatmap

The Monte Carlo Mean Reversion Heatmap turns "price looks stretched" into a number. It projects a forward probability cloud from 100+ simulated price paths (Geometric Brownian Motion runs built from historical log-volatility, with optional drift taken from the EMA slope) and counts how many of those paths touch or cross the EMA ribbon inside the projection window, reported as a Mean Reversion % on its dashboard.

How to Trade the Monte Carlo Mean Reversion Heatmap?

• Mean Reversion % above 70: statistical overextension, conditions that favor counter-trend setups targeting a return to the mean.
• Below 30: strong drift or elevated volatility; short-term reversion is unlikely, as in parabolic or breakout phases.
• Beyond the 5% or 95% percentile line: price sits in territory reached in roughly one of twenty modeled scenarios, a profit-taking and exhaustion watchlist, not an automatic fade.
• The 50% median path: the most probable trajectory, a realistic trend target and a benchmark for whether price is out- or under-running expectations.
• Heatmap shading: darker zones hold more simulated paths; narrow clouds signal controlled volatility, wide ones elevated dispersion.

Monte Carlo Mean Reversion Heatmap Settings

• Mean Length: the EMA period used as the reversion target: shorter for fast strategies, longer for swing horizons.
• Simulations: number of random paths; more improves statistical smoothness at a performance cost.
• Projection Length / Volatility Lookback: the forward window and the history used to estimate volatility.
• Include Drift: folds the EMA slope into the simulation; disabled, the model runs as a pure volatility random walk.
• Price Bins, Show Percentile Lines, and dashboard controls handle resolution and display.

Frequently Asked Questions

Does the projection repaint?

When should I prefer the Expected Move Distribution?

Where can I get the Monte Carlo Mean Reversion Heatmap?