Published 2026-10-14
Mean reversion
Mean reversion is the tendency of prices to move back toward an average after a move away from it. It is the mirror of momentum — and the two often operate on different horizons at once.
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What it is
Mean reversion is the tendency of a price to move back toward an average after it has moved away.
Buy what has fallen; sell what has risen. Where momentum follows the move, mean reversion fades it.
Why the two coexist
The same market can show both — because they act on different horizons:
| Horizon | Typical behaviour |
|---|---|
| Intraday / days | Often mean-reverting |
| Months | Often trending |
| Years | Often mean-reverting again |
“Does the market trend or revert?” has no single answer. The real question is: over what window?
How to check
Ask what the “mean” is, how it is estimated, and over what window the reversion is claimed. A mean estimated from the future is look-ahead bias. The reference level must be knowable at the time of the trade.