Mean reversion is a trading strategy built on a simple principle: stocks that fall too far below their average price often rebound back toward it. Instead of chasing hype or panic, this approach looks for opportunities when the market has overreacted, creating temporary discounts that can snap back in your favor.
How STKLY's Mean Reversion Alert Works
STKLY automatically scans for stocks trading significantly below their moving average, where a rebound is statistically more likely. By fine-tuning the alert’s settings, you can tailor it to your risk tolerance, time horizon, and trading style.
Start Date
This is a reference point used by STKLY for backtesting and historical tracking. You don’t need to adjust it — it’s pre-set to ensure consistency in results.
Moving Average Period
The moving average acts as your ‘baseline’ for what’s normal. A shorter period (20 or 50 days) reacts faster to recent moves, ideal for short-term traders. Longer periods (100 or 200 days) smooth out noise and are better for swing or position traders looking at bigger picture reversions. Choosing the right period helps match the alert to your trading timeframe.
Deviation Threshold (%)
This defines how far below the moving average a stock must fall before triggering an alert. Smaller thresholds (5–10%) catch more frequent but smaller pullbacks. Larger thresholds (15–20%) filter for only the deepest discounts, potentially higher reward but fewer signals. Think of this as your sensitivity dial.
RSI Confirmation
The Relative Strength Index (RSI) measures momentum. Enabling this filter adds an extra layer of confidence by only showing signals when the stock is oversold. It helps avoid false positives where a stock dips below its average but still has strong downward momentum.
RSI Oversold Level
By default, oversold is often considered below 30, but you can set your own threshold. A lower number (e.g., 25 or 20) means you’ll only see the most extreme conditions. Adjust this to balance between catching more opportunities vs. waiting for the highest-probability setups.
Volume Confirmation
Not all dips are created equal. Adding a volume filter ensures alerts only trigger when trading activity spikes — a sign that the move is driven by meaningful participation, not just thin trading. This helps highlight reversions with stronger conviction behind them.
Volume Increase (%)
This sets the threshold for how much volume must rise compared to normal. For example, setting 50% means alerts only trigger when trading volume is at least half again higher than average. This can filter out weak signals and focus on moves with real market attention.
Putting It All Together
Every trader approaches mean reversion differently. A short-term trader might use a 20-day moving average, a 5% deviation, and RSI confirmation at 30 to catch quick rebounds. A longer-term investor might prefer the 200-day moving average, a 15% deviation, and volume confirmation for only the strongest opportunities. By adjusting these variables, STKLY gives you control over how aggressive or conservative your strategy is.
With disciplined risk management and clear rules, mean reversion can turn temporary market overreactions into steady trading edges. Use STKLY’s alert configuration to make the setup your own and start catching rebounds before the crowd notices.
