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Hello,I'm a newbie and I'm currently trying implement a basic algorithmic trading strategy using historical returns data for a range of equities and indexes. However, when I was reading Ernie Chan's 'Quantitative Trading' he states that"Unfortunately, we cannot trade on the mean reversion of returns. "I'm not exactly sure why this is. Is it because the returns do not necessarily randomly distribute around a mean of zero? If I only have historical returns data, does this mean I'm confined to a momentum-based strategy?Apologies if this seems basic, however I'm new to this field and while I would feel more comfortable implementing a mean reversion type algorithm, I just want to understand why this is apparently not possible with the data I have.
Hello,
I'm a newbie and I'm currently trying implement a basic algorithmic trading strategy using historical returns data for a range of equities and indexes. However, when I was reading Ernie Chan's 'Quantitative Trading' he states that
"Unfortunately, we cannot trade on the mean reversion of returns. "
I'm not exactly sure why this is. Is it because the returns do not necessarily randomly distribute around a mean of zero? If I only have historical returns data, does this mean I'm confined to a momentum-based strategy?
Apologies if this seems basic, however I'm new to this field and while I would feel more comfortable implementing a mean reversion type algorithm, I just want to understand why this is apparently not possible with the data I have.
