Mean reversion on intraday charts: what the costs do to it
Posted: Mon Nov 02, 2026 4:24 pm
Mean reversion strategies on short timeframes often show attractive results before costs and disappointing results after. Because profits per trade are small, spread and commission take a large share.
A worked example: a strategy averaging 4 pips gross per trade with 300 trades a year would earn 1,200 pips before costs. With a 1 pip spread and 0.6 pip commission equivalent, costs total 480 pips, cutting the net result by 40 percent. Slippage on entries can reduce it further.
A method to stress test is to double assumed costs and see whether the strategy still holds. If it breaks, the edge may be too thin for real trading.
Timing the trades for the most liquid hours, when spreads are tightest, can help. Some traders restrict mean reversion to the London-New York overlap.
It is also worth checking whether the strategy depends on fills at exact levels, which may not happen in practice.
How do you account for costs in intraday tests?
A worked example: a strategy averaging 4 pips gross per trade with 300 trades a year would earn 1,200 pips before costs. With a 1 pip spread and 0.6 pip commission equivalent, costs total 480 pips, cutting the net result by 40 percent. Slippage on entries can reduce it further.
A method to stress test is to double assumed costs and see whether the strategy still holds. If it breaks, the edge may be too thin for real trading.
Timing the trades for the most liquid hours, when spreads are tightest, can help. Some traders restrict mean reversion to the London-New York overlap.
It is also worth checking whether the strategy depends on fills at exact levels, which may not happen in practice.
How do you account for costs in intraday tests?