Mean reversion: what's your fade setup?
Fading stretched moves against the mean wins often and loses big when the move isn't a stretch but a trend. The setup's whole job is telling those apart — and most fades fail right there.
Describe your fade:
- how you define "stretched" objectively
- the confirmation before you enter against the move
- the stop rule for when the fade is wrong
The Bollinger Bands guide and RSI are the classic fade instruments.
Background: Bollinger Bands explained: the squeeze, band walks and mean reversion
Bollinger Bands wrap a moving average in two volatility bands. Learn how they're calculated, what a squeeze means and why touching a band isn't a signal on its own.
What are the standard Bollinger Bands settings?
A 20-period simple moving average, with bands 2 standard deviations above and below it.
Is touching the upper Bollinger Band a sell signal?
Not on its own. In a strong uptrend price can ride the upper band for a long time. A touch shows price is stretched relative to recent volatility, which needs other evidence before it becomes a trade.
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