Chart Fanatics
August 12, 2026
Understanding Mean Reversion in Trading
TL;DR
Mean reversion is a trading strategy where assets that move significantly from their average price (2–7%) tend to reverse back to that mean, typically within 1–4 days on daily timeframes.
Key Takeaways
- 1Mean reversion trades measure how far an asset's price deviates from its average; a 6–7% movement tends to reverse back toward the mean
- 2Mean reversion trades on daily timeframes typically last 1–4 days before the price returns to the mean
- 3Trades can move against you during mean reversion trades, which is a normal part of the strategy
- 4Exit strategies are simple: either exit after a set number of days or when the market returns to the mean price
Chapters
1. What Is Mean Reversion
Mean reversion measures how far a price moves from its average, typically 2%, with larger moves of 6–7% expected to reverse back to the mean
2. Timeframe and Duration
Mean reversion trades on daily timeframes typically take 1–4 days to complete
3. Risk and Exit Strategies
Trades can move against you, which is normal; exit after X days or when the price returns to the mean
Glossary
- Mean Reversion
- A trading strategy based on the principle that asset prices that move significantly away from their historical average tend to revert back to that average
- Mean
- The historical average price of an asset, used as a reference point in mean reversion trading