Glossary
Mean Reversion
A trading hypothesis that prices tend to return to their historical average after extreme moves.
Mean reversion strategies bet that overbought or oversold conditions will correct. Common tools include RSI, Bollinger Bands, and z-scores. This style performs well in range-bound markets.
Key Points
- Best suited for sideways, ranging markets.
- Can suffer large losses during strong trending periods.
- Often combined with trend filters to improve timing.