Trading & Risk · Risk
Trend following vs mean reversion
The two big families of trading strategies, when each works, and how they fail.
Step 1 of 4 · Overview15 min read ·
| Trend following | Mean reversion | |
|---|---|---|
| Bet | moves continue | moves snap back |
| Typical entry | breakout to new high | stretch far from average |
| Win rate | low (30–45%) | high |
| Payoff | few big winners | many small winners |
| Pain | many small losses in chop | rare big loss when trend persists |
| Ancestor | Livermore, turtle traders | market makers, pairs trading |
Markets alternate between trending and ranging regimes. Most strategies make money in one and bleed in the other, which is why risk control matters more than the signal.
Key idea
Rates tie-in: yields trend for months around central-bank cycles, but short-term moves around data releases often mean-revert.Next: Practice