trading-edge

Before moving to trading bots, I will summarize here about the Indicators used in "Cross-sectional Momentum" and "Mean Reversion" mentioned in other casts.

Cross-sectional Momentum:

This strategy aims to identify assets with strong momentum, i.e., those that have shown superior performance in the recent past. To do this, indicators are used that measure the strength and direction of the price trend. Some of the most common are:

Ind 1. Past performance: The asset's return over a given period, e.g., the last 30 days, is calculated. The assets with the highest returns are selected, assuming that they will continue their upward trajectory.

Why? It is a simple and direct indicator that reflects the strength of momentum.

Ind 2. Trading volume: High volume can indicate strong interest in the asset and confirm the validity of the trend.

Why? Volume acts as a measure of the conviction behind the price movement.

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Indicators used in "Mean Reversion" strategies:

Ind 3. Bollinger Bands: Show price volatility by means of two bands that deviate from a moving average. If the price touches the upper band, it is considered overbought, and if it touches the lower band, it is considered oversold.

Why? They allow to visualize the price volatility and identify extreme deviations.