# Mean Reversion Trading
**Moeilijkheid:** intermediate · **Timeframe:** Hours to days · **Asset:** stocks, ETFs
**Strategie van:** Jim Simons (Renaissance Technologies)
**Risk/Reward:** Moderate risk, moderate reward (5-15% per trade)
**Win rate:** 65%

## Samenvatting
Profiteer van prijsextremen die terugkeren naar gemiddelde. Koop oversold, verkoop overbought met statistische voordelen.

Mean Reversion exploiteert de neiging van prijzen om terug te keren naar hun gemiddelde na extreme bewegingen. Wanneer aandelen 2+ standaarddeviaties afwijken van hun 20-day moving average, snappen ze typisch terug. Jim Simons' Renaissance Technologies gebruikt geavanceerde mean reversion modellen die 66% jaarlijkse rendementen genereren (1988-2018).

## Kernprincipes
- Identify overextended price moves (2+ standard deviations)
- Trade against the short-term emotion, not long-term trend
- Use statistical indicators (RSI, Bollinger Bands, Z-score)
- Quick exits - hold hours to days, not weeks

## Instap-regels
- RSI < 30 (oversold) or RSI > 70 (overbought)
- Price touches lower Bollinger Band (buy) or upper BB (short)
- No strong directional trend (range-bound market)
- Volume spike on reversal

## Uitstap-regels
- Exit when price returns to 20-day MA
- Stop loss at 2% below entry
- Take profit at 10-15% gain
- Exit if trend emerges against position

## Risico's
- Only trade in range-bound markets (avoid strong trends)
- Risk 1% per trade
- Diversify across 10-15 positions
- Monitor correlation (don't overload one sector)

## The Statistical Foundation: Mean, Standard Deviation, and Reversion
Mean reversion is built on a simple statistical observation: extreme values tend to return toward the average over time. If a stock typically trades at $100 but suddenly drops to $70 without fundamental changes, probability suggests it will revert toward $100.

The key concept is standard deviation—a measure of how far prices typically stray from the average. One standard deviation captures about 68% of all price movements. Two standard deviations capture 95%. When a stock moves 2+ standard deviations from its mean, it's statistically 'stretched' and likely to snap back.

Jim Simons' Renaissance Technologies built their legendary Medallion Fund largely on sophisticated mean reversion models. Their 66% annual returns (1988-2018) came from identifying thousands of small statistical edges and exploiting them systematically. While retail traders can't match their sophistication, the underlying principle remains accessible: buy when prices are statistically cheap, sell when they're statistically expensive.

## Bollinger Bands: Your Mean Reversion Roadmap
Bollinger Bands translate mean reversion theory into a visual trading tool. The setup is simple: a 20-period moving average (the mean) surrounded by two bands set 2 standard deviations above and below.

When price touches the lower band, it's 2 standard deviations below average—statistically oversold. When it touches the upper band, it's 2 standard deviations above—overbought. About 95% of price action should occur within the bands.

The trading logic: buy when price touches the lower band and shows signs of reversal (a bullish candle, increasing volume). Target the middle band (20-day average) for conservative exits, or the upper band for aggressive targets. Reverse the logic for short trades at the upper band.

Critical warning: Bollinger Bands work beautifully in range-bound markets but fail in strong trends. In a sustained downtrend, price can 'walk the band'—staying at the lower band while the average drops to meet it. This is why context matters more than the indicator itself.

## RSI Oversold/Overbought: Confirming Mean Reversion Setups
The Relative Strength Index (RSI) measures momentum on a 0-100 scale. Readings below 30 indicate oversold conditions; above 70 indicates overbought. Combined with Bollinger Bands, RSI provides powerful confirmation for mean reversion trades.

The ideal mean reversion setup: price touches the lower Bollinger Band AND RSI drops below 30. This dual confirmation increases probability—both price and momentum are at extremes. Wait for RSI to turn up (crossing above 30) before entering, confirming the reversal has begun.

RSI divergence adds another edge. If price makes a lower low but RSI makes a higher low, momentum is weakening despite falling prices—the downtrend is losing steam. This divergence often precedes mean reversion bounces.

One key insight: RSI works best on timeframes of 14 periods or more. Shorter periods create too much noise. And like Bollinger Bands, RSI can stay oversold for extended periods during strong trends—the indicator tells you 'stretched' but not 'when it snaps back.'

## When Mean Reversion Fails: Avoiding Falling Knives
The greatest danger in mean reversion trading is catching a falling knife—buying something 'cheap' that keeps getting cheaper. This happens when traders mistake a trend change for a temporary deviation.

Mean reversion works in range-bound, mean-reverting markets. It fails spectacularly in trending markets. A stock dropping from $100 to $70 might be 'oversold'—or it might be repricing permanently due to fundamental deterioration. Enron looked 'oversold' all the way to zero.

Protect yourself with these rules: First, only trade mean reversion in assets with stable fundamentals—blue chips, major ETFs, established indices. Avoid mean reversion in individual stocks with bad news. Second, define your 'uncle point'—if price continues 1 more standard deviation against you, the thesis is wrong. Exit immediately. Third, check the broader context. If the entire market is crashing, individual stock mean reversion is irrelevant—everything is falling together.

The professionals at Renaissance trade mean reversion across thousands of positions simultaneously. Individual failures are expected—the edge comes from probability across many trades, not certainty on any single one.

Bron: https://daytraders.nl/strategies/mean-reversion-trading