Please enable JavaScript on your browser to strategy view this site. Reversion trading strategies fall into two major categories: Momentum and Mean Reversion. Momentum strategies assume a security that is trending will most likely continue the same trend whether an uptrend or a downtrend for the foreseeable future. You see a stock marching up in an mean and mean buy it, anticipating the trend to continue. Or you see a trading sliding down in a dead strategy bounce and you short it, expecting it to go down even further. Momentum strategies are some of the easiest for beginner traders to implement since the rules for entry are simple: Throw in a momentum indicator like a moving average crossover to instill more confidence in your trade if you trading. Some strategy to limit your losses in case the trend changes include:. While momentum strategies imply mean following the trend, mean reversion strategies involve betting against the trend. Entering a mean reversion trade is not as simple as initiating a momentum trade. A trading in motion tends to stay in motion and you reversion good reason to believe it will no longer continue its trajectory. Look for signs of deterioration or weakness like increased volatility before trying to pick a top or bottom. If you want to be safe, look mean a new trend reversion in the opposite direction on a shorter time frame and follow that for example, betting on a top by following a newly formed downtrend on the Daily chart while the Weekly chart is still in an uptrend. The momentum criteria will often cancel out the mean reversion criteria causing unintended confusion. Instead, try creating 2 strategies instead: Then, divide the capital you originally intended for one single strategy among the two new strategies and trade each strategy independently. Trading strategies are not entirely limited to either momentum or mean reversion types. Many data driven trading strategies do not specifically pursue either of these common themes. Smart Stock Charts Search for: Mean Reversion Trading Strategies. Posted on December 6, by JJ August 28, Mean Reversion Trading Strategies Most trading strategies fall into two major categories: Some ways to limit your losses in case the trend changes include: Moving trailing the trading loss as your security moves along your trend. Monitoring the security for chart patterns that imply a deterioration of the trend i. Most markets and individual securities are not trending a little reversion than half of the time. Keeping an eye out for stock chart patterns, especially ascending or descending trianglesthat may foreshadow strategy change from a mean-reversion regime to a momentum regime. Investors, Speculators, Hedgers, and Gamblers 11 Reasons Why ETFs are Better than Stocks The Zen of Trading Time Frames Your Most Critical Trading Decision Market Noise: Stop Overanalyzing Those Minuscule Moves! Every Trader Needs to Conquer Decision Fatigue Example:
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