What Is Mean Reversion?
Mean reversion is the tendency of prices and sentiment to return to an average after stretching too
far. It is the logic behind reading fear and greed extremes.
1
Back to average
Stretched prices tend to return to the mean.
2
Two-sided
Overbought tends to fall; oversold tends to bounce.
3
Sentiment edge
Extremes are where reversion is likeliest.
Source: CFGI
Markets