What Happens After Nearly Every Strong Move in the Market?

The answer? Mean reversion.

But here’s the thing - it doesn’t always happen the same way. Understanding the different forms of mean reversion can give traders a serious edge.

The Two Types of Mean Reversion

1️⃣ The Fast Retrace

After a strong move, the market quickly pulls back and erases a significant portion of the move, bringing price back towards the average.

📉 Example: A major rally into a key daily resistance level leads to profit-taking, causing a sharp drop. This creates short-term countertrend opportunities for traders who can react quickly.

2️⃣ The Slow Grind

Instead of a sharp pullback, the market consolidates sideways, allowing the average price to catch up over time.

📊 Example: A strong breakout is followed by a range-bound market, where price fluctuates within a zone before deciding its next move. This creates range-trading opportunities in both directions.

Where’s the Opportunity?

The key to profiting from mean reversion isn’t trying to predict the exact turning point. It’s about taking small, high-probability trades and getting in and out efficiently.

✅ Big move into a daily level? It could trigger profit-taking, offering a quick mean reversion play.

✅ Strong move followed by consolidation? Trade within the range until the market decides its next direction.

Why Many Traders Struggle

One of the biggest mistakes I see is traders using a one-size-fits-all approach.

🚫 A level hit after a strong fundamental move won’t react the same way as a level hit in a slow, low-volatility session.

🚫 A breakout that follows scheduled news is different from a breakout that happens in a quiet market.

Recognising these differences is what separates consistent traders from those who struggle. Adapt to the market environment, trade what you see, and let probability do the work.