Mean Reversion
Mean reversion assumes price tends to snap back after stretching away from its mean. It does not contradict momentum: momentum rules medium-term trends, mean reversion rules short-term extremes and ranges.
The core assumption: price oscillates around a “fair center of gravity,” and the further it stretches, the stronger the pull back. That center can be a moving average (like the Bollinger midline), a valuation anchor, or a statistical equilibrium. Short-term spikes and crashes, pairs-trading spreads, volatility’s high-low cycles — all run on this same logic.
The commonly missed point: mean reversion and momentum coexist in the same market, operating on different time scales. Multi-day overextensions tend to retrace (short-term reversal); multi-month strength tends to persist (momentum); multi-year extremes revert again. Mixing up the scales is the technical root of “buying the dip halfway down the mountain.”
What kills mean-reversion strategies is the mean itself moving: once a symbol enters a trend, the old center of gravity is void, and averaging against the move becomes catching knives. Professionals therefore classify state first — mean reversion only has soil to work in when the symbol is confirmed in a range with a stable center.
CycleMaster’s four states provide exactly that switch: in Top range or Bottom range, range-trading tactics (sell high, buy low within the box) are the supported playbook; the moment the state flips to Uptrend or Downtrend, the system signals that trend logic has taken over — so you never fight a trend with range thinking.
FAQ
Not a choice — a division of labor by scale and state: mean reversion in ranges, momentum in trends. Mature systems switch between them by state rather than permanently betting on one.
Check the center’s stability: a flat moving average with price oscillating symmetrically around it and clean range boundaries means the mean holds; a sloping average with price persistently on one side means the center is migrating and the old mean is dead.
Related terms
CycleMaster labels every symbol with its cycle state and macro resonance verdict in real time — and signals never repaint.