Mean Reversion
Reversal / Fade Trading
Betting against a move that's gone far, fast, on the idea that a statistically stretched price is more likely to snap back than a normal one. A strong trend never technically has to revert, so the bet only works if the move actually was overextended and not the start of something real.
Click an extended bar, fade it, see what happens
The strip under the price chart colors every bar by how many standard deviations it sits from its own 14-bar average, cool for near the mean, hot for genuinely stretched. Bars with enough history behind and ahead of them are clickable. Click one to place the fade and reveal whether price reverted toward the average or kept extending away from it over the next several bars.
Click any colored cell in the strip · grey cells don't have enough history before or after them to grade
How it works
- "Extended" is measured against the bar's own recent average, not a fixed number. Each colored cell is a z-score: how many standard deviations that bar's price sits from its trailing 14-bar average. A z of 2 means the price is about two standard deviations away from where it's been trading, statistically unusual on its own terms.
- A fade is a bet on reversion, not a prediction of direction beyond that. Clicking a hot-colored bar above the average enters a short expecting price to fall back toward the mean; clicking one below the average enters a long expecting a bounce back up.
- The grade compares distance from the average now to distance after the holding period. If price is meaningfully closer to that same average level a few bars later, the fade worked. If it's the same distance or further away, the move kept extending and the fade failed.
- More extreme doesn't automatically mean a better fade. Check the extreme-bar win rate against the overall win rate above. Sometimes the most stretched bars snap back hardest, sometimes they're stretched because a real trend is underway and they keep going anyway.
Where this breaks
A statistically extended move can extend again, and again
Standard deviations describe how a price has behaved recently, not what it's required to do next. A genuine trend, the kind driven by real new information rather than a temporary overshoot, doesn't know it's "supposed" to snap back merely because it looks stretched on a chart. Fading purely on distance from the mean, with no separate reason to believe the move is exhausted, is a bet with no edge beyond a coin flip, and the losses on the fades that keep extending tend to be the ones that were the most stretched to begin with, since that's exactly the setup that looked most tempting to fade.