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Rules of Mean Reversion Scalping Setups

The document describes two core mean reversion scalping setups - the Retest Variation (RTV) and Retest Concept (RTC). The RTV setup identifies retest patterns that occur immediately after a touch of the 2-minute Bollinger band. It requires a lower close without breaking the lower Bollinger band, followed by a higher close without breaking the band. Once the setup is complete, traders enter on a break above or below the setup bar depending on the direction, with a stop loss placed at the Bollinger band touch point. Several examples of long and short RTV setups are provided.

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Joseph Chukwu
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Download as PDF, TXT or read online on Scribd
253 views

Rules of Mean Reversion Scalping Setups

The document describes two core mean reversion scalping setups - the Retest Variation (RTV) and Retest Concept (RTC). The RTV setup identifies retest patterns that occur immediately after a touch of the 2-minute Bollinger band. It requires a lower close without breaking the lower Bollinger band, followed by a higher close without breaking the band. Once the setup is complete, traders enter on a break above or below the setup bar depending on the direction, with a stop loss placed at the Bollinger band touch point. Several examples of long and short RTV setups are provided.

Uploaded by

Joseph Chukwu
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Rules of Mean Reversion Scalping

Setups

We have two core setups, Retest Variation


(RTV) and Retest Concept (RTC)

These setups are objective rules which


identify an old and well tested concept in
price action, the “retest”

What we are attempting to do is use a set


of rules to identify this situation, where you
have price action which indicates it is safer
to bet counter-trend.
This exact point is where the risk reward
ratio of the trade is at it’s best, and
therefore the optimal time to enter.

We are using our system design principle of


specificity to try and make sure that our
setups behave similarly. To achieve that we
are not simply trading all retest patterns that
we see, but a subset of retest patterns.
We are trading Retest Patterns that happen
immediately after a touch of the
bollinger band​ (2,20 standard parameters)

Why? Because reversals are higher


probability after an extreme. Bollinger
bands represent an extreme reading,
therefore reversal becomes a better trade.
We are getting even more specific by
requiring that our setups on the 2 minute
charts have “confirming evidence” on the 5
minute AND 10 minute charts.

There are 4 separate categories of


“confirming evidence” that we will be
covering later in the week. (These are quite
complicated). So, let’s not worry about them
yet but learn the rules of the first two
setups.

There is a separate requirement that a


setup be a good risk reward trade, which
we will also cover later (called “high and
tight”)
Rules of the Retest Variation (RTV)
Setup Long

1) Touch of Bollinger band (2,20)


2) Lower close, without breaking
Bollinger low (can happen same bar as
1)
3) Higher close, without breaking
bollinger low

SETUP COMPLETE

Enter on a break of the nearest half-pip or


full pip below the setup bar high.

Stop loss at nearest half-pip or full-pip


below the bollinger touch low.
Example:

Note that once the setup is complete, it is


not entered immediately because the entry
trigger is above the setup bar high, which is
never reached.
In this situation you move the entry trigger
to above the next bar high (which is, by
definition a better risk-reward entry)

Some examples of long setups


The short setup is identical to the long
setup

Rules of the Retest Variation (RTV)


Setup Short
1) Touch of bollinger band (2,20)
2) Lower close, without breaking
bollinger high (can happen same bar as
1)
3) Higher close, without breaking
bollinger high

SETUP COMPLETE

Enter on a break of the nearest half-pip or


full pip below the setup bar low.

Stop loss at nearest half-pip or full-pip


above the bollinger touch high.

Examples:

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