Mean Reversion Stock Screener
By Aldwin Keppens - reviewed by Kristoff De Turck
Last update: Apr 19, 2024
Mean Reversion
In this article we will give some general mean reversion screening ideas. Mean reversion or 'reversion to the mean' is a counter-trend strategy where one speculates on a correction in the current trend. The theory behind the idea is that prices never rise or fall in a straight line, but will come back to there means when they are extended.
In the Dynamic RSI and ChartMill Value Indicator article we discussed the Dynamic RSI and Chartmill Value Indicator and pointed out how they can be used to find extremes in price formations (= overbought and oversold levels where the trend may reverse).
Counter trend strategies are always a bit tricky because you will indeed go in against the current trend. Using stop orders to enter your position may be a good idea here: this does give you at least some confirmation that a reversal has started. A good thing on counter trend strategies is that you always have a good exit point near your entry (a new high or new low). So typically you will have a good risk/reward ratio.
We will list 10 screens, based on 5 indicators that can help you finding decent mean reversion setups.
1) RSI Indicator based stock screen
As explained in the article about the dynamic RSI, the classical RSI indicator does give good signals when it comes out of the overbought or oversold zones. For this to happen, the reversal has already started.
- LONG when the RSI indicator crosses 30 from below
- SHORT when the RSI indicator crosses 70 from above
2) Dynamic RSI based stock screen
As explained in the article about the dynamic RSI, the dynamic RSI does a very good job at finding overbought and oversold levels.
3) Chartmill Value based stock screen
As explained in the same article about the ChartMill Value Indicator, the chartmill value indicator does a very good job at finding overbought and oversold levels.
- LONG on ChartMill Value Indicator oversold signal
- SHORT on ChartMill Value Indicator overbought signal
4) Stochastics indicator based stock screen
Like the RSI, the Stochastics typically remain in overbought or oversold territory for a longer period, but may give good reversal signals when the fall out of these zones.
5) Bollinger Bands based stock screen
Note: All these screens have set filters to ensure minimum liquidity. You are of course free to set your own preferences and to combine these screens with other screens.
