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Testing the mean-reversion z-score system
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AT-November 2007-1
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Putting a short-term "mean-reversion" system through its paces highlights the importance of conducting a rigorous, objective test before you risk real money.
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Detailed Description
The following discussion illustrates how to design and test a "mean-reversion" system, which is a strategy that enters trades by determining when price is at an extreme and is likely to return to its average value. The system is based on the "z-score," which represents the number of standard deviations by which each data point in a dataset differs from the mean.
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