MFI X Cuban's Reversion Bands Strategy

Notes:

These indicators and concepts are specifically designed for TradingView.com

All indicator breakdowns will be found in the indicators tab on the home page of: STRATEGY

Indicators:

Go to INDICATORS and type in Cuban's Reversion Bands

Go to INDICATORS and type in MFI (Money Flow Index)

‍

How to Enter Long Position:

To enter a long position (you think price will rise) look for these paramaters

1. When PRICE touches the outermost Green Band (Band with Least Transparency) then look at the MFI
2. MFI has to be under 20 (indicates security is oversold)

When looking for a Long do steps 1-2 in order. If both are being displayed then we can enter a long.

In Lehmans Terms: When price hits green haze, look at the purple line. If purple line is below 20 it is likely the stock will go up.

How to Exit Long Position:

When looking to exit a long position one of two things can happen.

1. When PRICE touches the outermost Red Band (Band with Least Transparency) or we can look at the MFI
2. MFI has to be over 80 (indicates security is overbought)

In Lehmans Terms: If you have bought the stock and it hits the red haze, OR the purple line is above 80, you can think about selling

‍

When looking to exit understand that the closer you get to the outermost red cuban band, the more statistically probable the reversion. This principal also applies to MFI as the closer to 80 you go the more probable the reversion. So take that into consideration when seing how comfortable you are with waiting.

How to Enter Short Position:

When looking to enter a Short Position the opposite paramaters apply

1. When PRICE touches the outermost Red Band (Band with Least Transparency) look at the MFI
2. MFI has to be Over 80 (indicates security is overbought)

In Lehmans Terms: When price hits red haze, look at the purple line. If purple line is above 80 it is likely the stock will go down.

‍

When looking for a Short do steps 1-2 in order.

How to Exit Short Position:

When looking to exit a long position one of two things can happen that can each individually be a signal.

1. When PRICE touches the outermost Green Band (Band with Least Transparency) look at the MFI
2. Or, MFI has to be under 20 (indicates security is oversold)

In Lehmans Terms: If you have bought the stock (to short) and it hits the green haze, OR the purple line is below 20, you can think about selling

‍

How each indicator works

This is for the advanced, you don't need to memorize how it works but this is meant to help you understand it in depth.

How Cuban's Reversion works

The indicator is based on the idea of mean reversion, which contends that over time, prices have a propensity to return to the mean.

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.

Cuban's Reversion Bands should be used in conjunction with other indicators to determine potential entry and exit opportunities in the market. Cuban's Reversion Bands should be utilized in conjunction with other analytical methods and risk-management techniques since, like every technical analysis indicator, they are not infallible.

‍

How to trade the Money Flow Index

The Money Flow Index (MFI) is a technical analysis indicator that is used to measure the strength of buying and selling pressure in financial markets. The MFI is based on the concept of volume-weighted price momentum, and is similar to the Relative Strength Index (RSI).

To manually calculate the MFI, follow these steps:

1. Determine the typical price for each period, which is the average of the high, low, and closing prices.
2. Determine the raw money flow for each period, which is the typical price multiplied by the volume.
3. Calculate the positive and negative money flow by summing the raw money flow for periods where the typical price is higher or lower than the previous period.
4. Calculate the money flow ratio by dividing the positive money flow by the negative money flow.
5. Calculate the MFI by calculating 100 minus (100 / (1 + money flow ratio)).

The MFI is plotted on a chart as a line that oscillates between 0 and 100. Readings above 80 are considered overbought, and readings below 20 are considered oversold. Traders use the MFI to identify potential buying or selling opportunities, with overbought conditions indicating a potential selling opportunity, and oversold conditions indicating a potential buying opportunity.

The MFI can also be used to confirm or contradict signals from other technical analysis indicators. For example, if the price of an asset is trending upwards but the MFI is trending downwards, it may indicate that the trend is weakening and a potential reversal is imminent.

It's important to note that the MFI is just one of many technical analysis indicators that traders use to analyze financial markets. Traders should always perform a comprehensive analysis of the market before making any trading decisions, and use risk management strategies to mitigate potential losses.