Mean Reversion
A strategy that bets stretched prices snap back toward their average — buying oversold dips and selling overbought rips.
Mean-reversion traders assume price tends to return to a mean (a moving average, VWAP, the middle of a range) after stretching too far from it. They fade extremes: buying when an oscillator is deeply oversold near support, selling when it's overbought near resistance — the opposite of trend following.
It tends to have a high win rate with small winners and occasional large losses when a 'stretched' move keeps going (a trend), so a hard stop is essential. It works best in range-bound, choppy conditions where trends don't persist.
On StockSetups
Although StockSetups is built around trend and breakout setups, its oscillator fields — RSI, stochastic, Williams %R, Bollinger %B and distance from moving averages — let mean-reversion traders screen for stretched names reverting toward support.
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