Mean Reversion Strategies
Master statistical arbitrage by identifying and trading price deviations from historical averages
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Momentum Trading
What is Mean Reversion?
Mean reversion is a trading strategy based on the statistical theory that asset prices tend to return to their historical average over time. When prices deviate significantly from their mean, they create trading opportunities.
Core Concept
Markets oscillate around equilibrium. Extreme deviations are temporary and present profit opportunities as prices "snap back" to their average.
Oversold Signal
Price drops below mean → Buy opportunity
Overbought Signal
Price rises above mean → Sell opportunity
Why Mean Reversion Works
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Market Efficiency
Temporary price inefficiencies are corrected as information spreads
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Profit Taking
Traders lock in gains after significant moves, reversing momentum
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Supply & Demand
Extreme prices attract opposite side participants
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Important
Mean reversion fails during strong trends. Always combine with trend analysis and risk management.