{"slug":"mean-reversion","term":"Mean Reversion","category":"Quant & Stats","definition":"Mean reversion is the tendency of a stretched price or metric to drift back toward its average over time. Mean-reversion strategies fade extremes — buying deep dips, shorting overheated rallies, or collecting crowded funding — betting the rubber band snaps back. The approach performs best in ranging markets and fails hardest inside strong trends.","street":"Fading extremes pays quietly for months, then one real trend hands the whole PnL back if you skip the stop.","depth":["A mean-reversion system needs three defined pieces: the mean (a moving average, VWAP, or a metric's long-run average), the stretch trigger (a z-score past 2, RSI under 30, price a couple of ATRs from the mean), and the exit back at or near the mean. Winners tend to be small and frequent; the danger lives in the tail, because the few big losers come from fading a move that turned out to be a real trend.","The account-killer is averaging into the fade: 'it's even more stretched now' feels like a better price and is exactly how people short a breakout or catch knives with size. Markets stay stretched for weeks when a trend is on — stretched is a description, not a reason. Rules that save you: never add to a losing fade, never mean-revert through a broken level on rising open interest, and stand down entirely when the higher timeframe is trending."],"live":{"label":"Find oversold and overbought RSI in the screener","href":"/tools/scanner?tab=screener"},"related":["z-score","rsi","funding-rate"]}