Our Top 5 Indicators for Successful Reversion to Mean Trading

Reversion to mean (RTM) trading is all about finding those key points where price is likely to “snap back” to an average level. While the concept is simple, having the right indicators can make all the difference. In our trading, we rely on a few core tools to identify reversion setups with precision and confidence. The combination of these indicators helps us filter noise, confirm trade setups, and set clear entry and exit points.

Today, we’re sharing the top 5 indicators we use to find high-probability RTM opportunities: the 9 HMA, 10 EMA, 34 EMA, an oscillator, and the TTM Squeeze. Together, these indicators create a toolkit that gives us a structured approach for every trade.

9 HMA (Hull Moving Average)

The 9 HMA is one of our favorite indicators for spotting quick reversion signals, especially on shorter timeframes like the 1-minute and 3-minute charts. The Hull Moving Average is designed to be highly responsive, allowing us to capture rapid price movements without much delay.

Why We Use It: The 9 HMA’s speed makes it ideal for catching early reversion signs. When price strays far from this moving average, it often signals that a quick snapback is likely, especially if we see alignment with other indicators.

How We Use It in RTM: We look for situations where price moves sharply above or below the 9 HMA. This deviation often marks the start of a reversion opportunity, giving us a chance to enter before the price begins to pull back toward the mean.

Example: When the price climbs far above the 9 HMA, we start watching for confirmation of a reversion, possibly entering a short trade if other indicators support the setup.

10 EMA (Exponential Moving Average)

The 10 EMA is another essential tool in our RTM trading arsenal. While the 9 HMA offers speed, the 10 EMA provides a more balanced view, smoothing out minor price fluctuations to reveal clear deviations. We prefer this indicator on the 3-minute and 15-minute charts, where it serves as an effective reference point for near-term price reversion.

Why We Use It: The 10 EMA is sensitive but not overly reactive, making it a strong guide for identifying price deviations while filtering out some noise. This makes it a reliable level for quick reversion trades.

How We Use It in RTM: For us, the 10 EMA serves as a reversion level. When price moves significantly above or below the 10 EMA, we take note, especially if this deviation aligns with our other indicators.

Example: A price that jumps well above the 10 EMA on the 3-minute chart may indicate an overbought condition. If our oscillator confirms this, we might enter a short trade, aiming for a pullback toward the 10 EMA.

Keltner Channels (Set to 34 EMA)

We use Keltner Channels set to a 34 EMA with a band multiplier of 7 or 9 to mark key reversion zones. This setup creates a visual boundary around the mean, helping us identify extreme price levels where reversions are likely.

Why We Use It: The Keltner Channels provide a stable reference for price reversion, especially on higher timeframes. This setup filters out minor fluctuations and allows us to focus on genuine extremes, making it easier to capture larger reversion moves.

How We Use It in RTM: When price moves significantly above or below the Keltner Channel bands, we see it as a strong reversion signal. We often use the Keltner Channels as profit targets, as price tends to gravitate back within these boundaries over time.

Example: If price on the 15-minute chart is well above the upper Keltner Channel band, we may enter a short trade with a target near the 10 EMA, expecting a reversion to the mean.

Oscillator (e.g., RSI or Stochastic)

In addition to moving averages, we use oscillators to measure momentum and confirm overbought or oversold conditions. While there are several oscillators to choose from, RSI (Relative Strength Index) and Stochastic are our top picks for spotting extremes. These indicators are helpful for identifying when a price deviation is reaching an unsustainable level.

Why We Use an Oscillator: Oscillators complement our moving averages by showing whether momentum supports a reversion setup. When price is significantly above or below a moving average and the oscillator hits overbought or oversold levels, we have stronger confirmation of a reversion.

How We Use It in RTM: We typically use RSI or Stochastic to verify whether price has reached an extreme. If price is above the 10 EMA and RSI shows overbought, it’s a strong sign of a potential reversion back to the mean.

Example: On the 3-minute chart, if price is extended above the 10 EMA and the RSI reaches an overbought level, we may enter a short trade, anticipating a reversion to the EMA.

The TTM Squeeze

The TTM Squeeze is a unique indicator that we rely on to identify periods of market compression and release. It highlights times when price momentum is about to shift, which can be ideal for spotting reversion setups after consolidation phases. For RTM trading, the TTM Squeeze helps us gauge when price might be ready to break out of a consolidation and revert to the mean.

Why We Use the TTM Squeeze: We like the TTM Squeeze because it provides clear visual cues for momentum changes, which are often followed by a price reversion. This indicator shows when a squeeze is building (indicating consolidation) and when it “fires,” signaling a momentum shift.

How We Use It in RTM: When the TTM Squeeze fires in a direction that supports a reversion setup, it adds confirmation to our trade. If price is overextended and the squeeze fires off, it can be an ideal entry point for reversion.

Example: If price is far above the 34 EMA and the TTM Squeeze fires off to the downside, it strengthens our setup for a short reversion trade.

Combining These Indicators for Effective RTM Setups

While each indicator is useful on its own, we find that layering them together creates a powerful toolkit for identifying RTM trades. By using multiple indicators in harmony, we gain stronger confirmations and increase the likelihood of successful trades.

Layering Indicators for Confirmation: Our approach is to start with a price deviation from one of the moving averages (like the 10 EMA or Keltner Channels), then check the oscillator to confirm an overbought or oversold condition, and finally look to the TTM Squeeze for added momentum confirmation.

Creating a Step-by-Step Process: Here’s an example of how we use these indicators together:

1. Identify a price deviation from your moving average of choice.

2. Check if RSI or Stochastic is in overbought/oversold territory.

3. Check the TTM Squeeze for consolidation or "firing".

Example Setup: On the 3-minute chart, price spikes above the 9 HMA, enters your Keltner Channel bands with the RSI showing overbought. This sequence offers the potential for a short entry targeting the 10 EMA and/or 34 EMA below.

As You Can See

The right indicators can make all the difference in reversion to mean trading. Our top five picks—the 9 HMA, 10 EMA, 34 EMA, an oscillator, and the TTM Squeeze—offer a balanced toolkit for spotting high-probability reversion setups. Together, these indicators allow us to identify entry and exit points with precision, keeping our RTM strategy both consistent and effective.

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