RANGE / REVERSION
Mean Reversion · return toward the mean
Evaluate overextension in a stable range using a fixed reference, confirmation and an exit when the market regime changes.
The idea and its limit
Mean reversion seeks movement back toward a defined reference, such as a range midpoint or a predefined average. Session VWAP is often used for exchange-traded instruments; it is not a price magnet or a guarantee of a return.
Define the range and reference first
Illustrative filter: repeated reactions at upper and lower boundaries establish a range while the reference is not strongly directional. Fix boundaries and session start in advance. VWAP values can differ by data source and session definition.
Wait for a return signal
A long hypothesis might require a move below the lower boundary, a close back inside and clear invalidation below the extreme. The previously defined midpoint may serve as target. Mirror for shorts. Distance from an average alone does not justify entry.
When the idea no longer applies
If price establishes itself outside the range or a trend develops, abandon the reversion idea. Do not average down or move the target to avoid realising a loss. With limited target room, fees can consume the entire gross advantage.
Prop firm considerations
Several small gains do not automatically compensate for a rare large loss. Set a hard daily stop and a limit for correlated positions. Check news restrictions and how unrealised losses enter daily-loss and drawdown calculations.
Example: range 100–110 with midpoint 105. After a move to 99 and a confirmed return, hypothetical entry 101 and stop 98.8 leave 4 points to target against 2.2 points of risk before costs. A sustained break lower invalidates the reversion assumption.
Before you trade
- Verify a range rather than assume one.
- Fix reference, invalidation and target before entry.
- Ensure costs fit the available target room.
Common mistakes
- Trade every apparent overextension.
- Add to losers or remove the stop.
- Compare VWAP across incompatible sessions.
RESEARCH & RULE CHECKS
Our examples are editorial planning frameworks. CME explains the relationship between stop distance and position size. FTMO illustrates why daily, overall and consistency rules must be read separately for the specific account.
IG / Range trading ↗TradingView / Volume Weighted Average Price ↗CME / Position sizing ↗FTMO / Trading objectives ↗Continue building your process.
Trend Following · follow the trend
Follow established trends with a defined direction filter, bounded losses and a preplanned method for trailing winners.
Open playbook ↗OPEN / BREAKOUTORB · Opening Range Breakout
Define the opening range and evaluate a confirmed breakout with an explicit session, stop and cancellation rule.
Open playbook ↗ICT / POWER OF THREEAMD · Accumulation, Manipulation, Distribution
ICT’s Power of Three framework: make consolidation, a possible false break and subsequent expansion observable and testable.
Open playbook ↗