The idea.
Prices that stretch far from an average often move back toward it. Mean reversion traders fade those stretches.
Common tools.
- Bollinger Bands for stretch from a moving average.
- RSI or Stochastic for overbought and oversold readings.
- VWAP for intraday fair value on indices.
The main risk.
In a strong trend, price can stay stretched. Always use a hard stop and avoid adding to losing trades; averaging down is one of the quickest ways to breach drawdown rules.
الأسئلة الشائعة