# Mean Reversion in Trading: When Low Becomes High Again

There's a concept in trading that's surprisingly simple yet powerful: prices that deviate too far from their historical average tend to snap back. This is mean reversion, and it's the bread and butter of many market-neutral traders.

**How it works:**
When an asset spikes or crashes beyond its typical range, mean reversion traders bet on the pendulum swinging back. Instead of predicting which way the market goes, they're betting that temporary mispricings correct themselves. As quant strategist Marco Santanche puts it, this is genuinely market neutral—no directional bias needed.

**The real strength?**
It dominates in sideways and bull markets where asset relationships stay stable. During these periods, short-term deviations from the norm create predictable trading opportunities. Buy the dip, sell the pump, pocket the difference.

**Where it breaks:**
Bear markets are the Achilles heel. When market structure collapses, previously reliable relationships snap. Assets that *should* revert... just don't. Additionally, timing the actual reversal is brutal—it can happen faster than you react, even if your analysis was spot-on.

**Practical tools:**
Traders layer in RSI, Bollinger Bands, and standard deviation to identify oversold/overbought extremes. Earnings reports matter too—positive surprises create temporary deviations that often fade back to normal over quarters.

Bottom line: Mean reversion works, but it's a fair-weather strategy. Know the environment before deploying it.