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How to choose a stop loss for a mean-reversion bot

Alex Alexander

Mean reversion bots rely on price returning, so stops can cut off winners, but no stop risks huge losses. How do you design risk controls for this style? Share your approach and results across different markets.

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  • John Chibuzor

    For mean-reversion bots, I would use volatility-adjusted stop losses rather than fixed stops, with strict position sizing and a maximum daily drawdown limit. I’d also add a regime filter to avoid trading when the market is strongly trending, since price may not return to the mean.

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