BBY Not healthy, page-13

Just lifted this off BBY Stockbrokers Website ....they claimed to be the experts in options and shorting? Obviously not so expert when people say you cant lose on blue chips..seems they lost on the banks..lol

What is Mean Reversion & Rotational Trading?

Outlining The Advanced Styles of Share Market Trading

The advanced trading methods of Mean Reversion and Rotation Trading allow us to broaden our trading and profit opportunities.
Trend following is an often used trading strategy and it is what we refer to as the Basic Approach.
When using the basic approach of trend following we want to be trading with the trend, with the weight of market opinion.
So on the long side of the market, we want the trend to be up. And on the short side, when prices are dropping, we look for down trends.
In this style of trading, we're looking for stocks that have been travelling along one way or the other and then suddenly find themselves pulled away from their normal trend.
For trends on the long side, consider the analogy of the rubber band. It's now stretched downwards. But that in itself is not enough. In this style of trading, we're looking for a further downward stretch of that band.
Given we get this further move down, we then consider the stock has been sufficiently displaced downwards that we can expect it to rebound. The rubber band snaps back. The price reverts back up to towards its mean. Hence the name of this style, Mean Reversion.
We're looking to capture the reversion back up.
The Benefits of Mean Reversion

Mean reversion trading has a number of quite specific characteristics. The trades tend to be very short-term, averaging around four or five days in length.
Another feature of this style is that we set profit targets. This is in apparent contradiction to trend following where we find that setting profit targets can tend to be detrimental because in that style of trading, we want to let out profits run.
In mean reversion trading, it's much more “smash and grab,” and the profit target is the primary means of exit.
Mean reversion on the short side is just the reverse. Selling into a strong rally where the displacement is suddenly positive. The rubber band is stretched up. We then look for profit from the pullback or reversion back down towards the main.
The other style I mentioned is Rotational Trading. On the long side, the concept is almost blindingly simple. We've defined a universe of eligible stocks and we want to own the best one.
We define “best” in terms of the velocity of the stocks. We want the stocks that have the strongest trend. We then manage the stocks on a regular basis, periodically reviewing our portfolio.
The “rotation,” as we call it, is the interval between these reviews. This varies but it's mainly weekly, fortnightly or monthly. But it can be as short as daily or as long as quarterly or even longer.
In operation, at each rotation, we check the velocity and if a stock has fallen out of the top bunch, usually five to ten stocks, we sell it and replace it with what has moved up.
The converse applies on the short side where we want to be short at the stocks with the biggest downtrends.
In summary, broadening your ability to trade styles with different instruments in both directions will significantly improve your ability to increase your returns and smooth out your profit curve.
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