Bullish Dip-Buy / Bearish Peak-Short
Strategy Name: Reversal Fade
Strategy Description: Reversal Fade is a dual-direction, counter-trend strategy designed to capitalize on short-term price dislocations caused by momentum extremes and volatility-driven expansions. It identifies potential inflection points where asset prices are statistically stretched and poised for mean reversion, using a combination of Bollinger Band breakouts and RSI thresholds. This strategy is well-suited for traders looking to systematically fade overbought and oversold conditions with clearly defined risk parameters.
Core Setup:
Criteria for entering a Short position:
Mean Reversion Trigger (Short): Enters short when the price crosses below the upper Bollinger Band (20, 2) on the 15-minute bar chart, suggesting a loss of buying pressure and a potential shift from bullish extension to pullback.
Momentum Overbought Filter (Short): RSI(14) must be above 70 on the 15-minute chart, indicating an overbought condition and confirming the likelihood of a near-term reversal.
Criteria for entering a Long position
Mean Reversion Trigger (Long): Enters long when the price crosses above the lower Bollinger Band (20, 2) on the 15-minute chart, signaling a recovery from volatility-driven selling and potential price stabilisation.
Momentum Oversold Filter (Long): RSI(14) must be below 30 on the 15-minute chart, confirming the asset is in an oversold state and increasing the probability of a rebound.
Profit Target & Risk Control:
Take Profit: ±0.50%
Stop Loss: ∓0.50%
The symmetrical 1:1 risk-reward ratio provides consistency across both long and short setups, supporting disciplined execution and robust signal filtering.
Ideal For:
Traders looking to fade short-term extremes in either direction
Traders looking for strategies based on mean reversion dynamics confirmed by volatility and momentum extremes
Reversal Fade provides a structured approach to identifying and capturing infrequent but high-probability turning points, where a security exhibits overbought or oversold conditions at the extremes of its price range.
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Here is another version of the same strategy. The difference is on the exit. This version of Reversal Fade, which we are calling Reversal Fade Smart Exit, will exit the position based on the following criteria:
Strategy Name: Reversal Fade Smart Exit
https://app.trylevel2.com/invite/canvas/66da240d-18ed-4abb-8781-65464be8c050/7362
Long Position Exit Triggers:
If RSI(14) rises above 50, it suggests that bullish momentum is normalising and the initial bounce may be losing strength. This acts as an early warning to preserve gains before momentum fades.
If the price crosses above the middle Bollinger Band (20-period SMA), it indicates that the mean reversion objective has been achieved, and the position can be closed as the price stabilises near its average.
Short Position Exit Triggers:
If RSI(14) falls below 50, it implies that selling pressure is diminishing, signaling potential exhaustion of the downside move.
If the price crosses below the middle Bollinger Band, it reflects a return to the average from elevated levels, completing the intended short-term reversion.
These dynamic exits provide flexibility while preserving the core mean reversion thesis—locking in profits once the market shows signs of normalisation, rather than relying solely on fixed price levels. This adaptive approach can improve trade quality, reduce drawdowns, and enhance responsiveness in volatile or range-bound environments.
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