Why does mean reversion work? Which markets are most likely to mean revert?

Mean reversion strategies work best in stocks and are less useful in other markets, such as commodities.

Why is this?

Mean reversion was not successful in the stock market prior to the 1990s. We believe that one reason for this is the high trading of futures contracts, which leads to arbitrage between stocks and futures contracts.

Another reason for mean reversion is the constant struggle between buyers and sellers. When a stock is rising in value, many people tend to sell it to make some profit, while others may want to sell it short. This creates selling pressure.

Conversely, when a stock is falling in value, at some point there are more buyers than sellers, and the price decline stops and reverses. In addition, those who are short selling may want to lock in profits and thus buy back their shares. The latter may be the reason behind many very strong bear market rallies.

$BNB $ETH $BTC #TopCoinsJune2024 #IntroToCopytrading #FavoriteToken #MarketDownturn