Cuban's Reversion Bands

Notes:

These indicators and concepts are specifically designed for TradingView.com

Overview

Cuban's Reversion Bands is a technical analysis indicator that is used to identify potential overbought and oversold conditions in financial markets. The indicator is based on the concept of mean reversion, which suggests that prices tend to move back to their average over time.

To use Cuban's Reversion Bands in trading, follow these steps:

1. Calculate the average price of the asset over a specific period of time, such as the past 20 or 50 trading days.
2. Calculate the standard deviation of the price over the same period of time.
3. Calculate the upper and lower bands by adding and subtracting a multiple of the standard deviation from the average price. The multiplier is typically set at 2, but can be adjusted to suit the volatility of the asset being traded.
4. Plot the upper and lower bands on a chart to visualize potential overbought and oversold conditions.

When the price of the asset approaches the upper band, it may indicate that the asset is overbought and due for a pullback or correction. When the price of the asset approaches the lower band, it may indicate that the asset is oversold and due for a rebound or reversal. Traders can use Cuban's Reversion Bands in combination with other technical analysis indicators to identify potential entry and exit points in the market. For example, traders may use Cuban's Reversion Bands to identify potential overbought or oversold conditions, and then use other indicators such as the Relative Strength Index (RSI) to confirm the signal. However, it's important to note that Cuban's Reversion Bands, like any technical analysis indicator, is not foolproof and should be used in conjunction with other forms of analysis and risk management strategies.

How to Trade

1. Wait for the price to touch or cross either the upper or lower band. When the price touches the upper band, it is a signal to sell or short the asset, and when the price touches the lower band, it is a signal to buy or go long the asset.
2. Set a stop-loss order to limit potential losses if the trade goes against you. The stop-loss order should be placed just outside the opposite band of the one you entered.
3. Take profits when the price reaches the moving average or the opposite band. If the price reaches the moving average, it is a signal to exit the trade, and if the price reaches the opposite band, it is a signal to take partial profits.
4. Repeat the process for every trade opportunity that meets the Cuban Reversion Bands criteria.

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How it is calculated

The bands are calculated by first determining the mean or average price of a security over a specified period. This period can be adjusted to suit the trader's preferences and trading style. A common period used is 20 days. Once the mean price is determined, the upper and lower bands are calculated by adding and subtracting a multiple of the standard deviation from the mean price. The standard deviation is a statistical measure that indicates how much a price or other data point deviates from the mean. The Reversion Bands typically use a multiple of 2 for the standard deviation, meaning that the upper band is set at 2 standard deviations above the mean price, and the lower band is set at 2 standard deviations below the mean price. This multiple can be adjusted based on the trader's preferences and the volatility of the market.