Mean Reversion

Mean Reversion – A rule-based strategy based on the idea that prices tend to revert to their historical average. A mean-reversion bot looks for extreme deviations from an average (e.g. Bollinger Bands or RSI extremes) and bets the price will “mean-revert” back. Investopedia explains mean reversion as “the financial theory suggesting asset prices will eventually return to their historical average,” so traders exploit sharp moves by buying undervalued and selling overvalued conditions. In forex cBots, mean-reversion often uses indicators like moving averages or oscillators to trigger entries when a currency pair is statistically stretched beyond its norm.

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