A few weeks back I was asked to code a mean reversion indicator that plotted the percentage spread of the current close from a given simple moving average. This study is the result. On the lower subgraph you see the blue line representing the current close’s difference from the SMA as a percentage of the price. This gives some insight into how far this “rubber band” typically stretches before a price reversion to the mean occurs. The red horizontal lines depict one standard deviation of the spread percentage for all the chart data.
thinkorswim SMA Spread 10/07/10
A mean reversion indicator that plots the percentage spread of the current close from the SMA.
