π Quant & Trading
Mean Reversion Strategies
Strategies that bet prices will return to their historical average. When an asset moves "too far" from its mean, trade against the move expecting a revert. The direct counterpoint to momentum/trend-following β where momentum says "the trend is your friend," mean reversion says "what goes up must come down."
2
Minutes
6
Concepts
+45
XP
1
The Theory
Many financial time series are mean-reverting at certain timescales. A stock that drops 20% on no news is likely oversold. The bid-ask spread itself is a mean-reverting process. Statistically, this is the concept of stationarity β a stationary series always pulls back toward its long-run mean.