Trading Strategies
Mean Reversion
Fading extended moves back toward an average or value area, profiting when stretched price snaps back. High win rate, occasional painful losers.
In plain English
Mean reversion traders sell strength and buy weakness at statistical or structural extremes: a stretch far from VWAP, an exhaustion spike into a prior range, an overshoot of value. Most such trades revert quickly, producing the style's trademark high win rate.
The danger is the day the market does not revert. One trending session fading NQ can erase weeks of small wins, and on prop accounts it collides with daily loss limits first. Survivors of this style are ruthless about the stop and refuse to average down.
- NQ spikes 90 points above VWAP into prior supply.
- A trader shorts for the fade back toward VWAP, risking 15 points, and wins the retracement 7 times in 10.