Mean Reversion

Mean Reversion

Mean reversion refers to the tendency of things, be they financial assets, securities, corporate earnings and a host of other items, to cluster around their mean price levels including after bouts of price volatility; price volatility is rarely sustained over a long period of time. Many traders use the concept of mean reversion to hone trading strategies. The mean is by definition constantly moving, so whether prices move to meet the mean or the mean evolves to align with prices, both are considered mean reversion.

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