https://youtu.be/77bvX1RKckA
What Is Mean Reversion?
Currencies move in a continuous cycle from overbought to oversold and back again, and this price action is perfectly described by the currency strength indicator for NinjaTrader, and at the start of the London forex trading session, we see the USD and JPY rising strongly, with the AUD falling strongly and delivering an excellent trade before the reversal begins.
Mean reversion is a financial theory stating that asset prices tend to return to their historical average (or "mean") over time after deviating significantly. It's the opposite of momentum trading (which assumes trends continue).
In practice:
If a price moves far above its average, it's "overbought" and likely to fall back.
If far below, it's "oversold" and likely to rise.
This happens due to market forces like arbitrage, supply/demand rebalancing, or psychological levels. It's most visible in ranging markets, not strong trends.
Why Mean Reversion Is Important to Forex Traders
Forex markets are ideal for mean reversion strategies because:
Ranging Behavior: Major pairs...
