In this article, we will explain the phenomenon of mean reversion in stock prices or Forex. Not a few trading strategies aim to exploit one of two phenomena prevailing in financial markets - mean reversion or momentum.

### What is Average Reversion?

The financial concept of average return is better known as "mean regression," which refers to the probability of a data set deviating from back to average. This is often referred to in mathematical terms. The average return strategy has the underlying assumption that historical averages have significance.

Yet not a few average return traders do not believe that historical averages have any significance. Though this point is a convenient reference. For example, if a stock is three standard deviations from the 10-day average, it is an indicator that it has just made a very large upward movement. And there is also a signal with great potential.

#### Directional Average Return

A directional average return strategy involves projecting a directional price movement in a particular security. For example, if the stock Apple is down two standard deviations from the 90-day linear regression, we might expect a net return in the situation lean positive.

#### Relationship Means Reversion

Most professional average return traders do not trade directionally. Instead, they trade relations between securities. A simple example is a statistical arbitrage between two sharing classes. In most cases, both stocks have nearly the same intrinsic value and should be traded at the same value.

#### Types of Targeted Average Return Strategy

- Technical Indicators
- Linear Regression

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