Mean Reversion in Forex
A clear definition of Mean Reversion, with practical context for reading markets and making better trading decisions.
Definition
Mean reversion is the idea that a price or statistical measure can move away from its typical level and later move back toward that average.
What the “Mean” Is
The mean might be represented by a moving average, VWAP, historical average, or another statistical reference. The choice of mean matters because markets can change regime and establish a new normal.
Trend Risk
Mean-reversion thinking works best when the market is genuinely oscillating around a stable center. In a strong trend, repeatedly assuming that price “must” return to an old average can be dangerous.
Key Takeaway
Mean reversion is a tendency, not a law. First decide whether the market is ranging around a stable average or trending away from it.
Practical forex example
Why Mean Reversion matters
Understanding Mean Reversion helps traders interpret market information, plan decisions, and manage risk with more context.
Related forex terms
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