When Not to Use Mean Reversion

Mean reversion can struggle when the market develops a strong trend.

A mean-reversion trader often looks for price to return toward a reference such as VWAP or an established value area.

But during a strong directional session, price may remain extended for much longer than expected.

Repeatedly fading every move can result in several consecutive losses.

Before looking for a reversal, I want to determine whether the market is balanced or trending.

I also examine whether the setup has historically performed well under similar conditions.

A strategy should have conditions under which it is used—and conditions under which it is avoided.

Knowing when a strategy is unsuitable is just as important as knowing its entry rules.