Adrian Reid explains a mean-reversion trap: buying oversold markets for a quick snap-back profit. The snap-back is often brief and followed by another collapse, so you need fast exits like taking a single profitable close or exiting when RSI hits 30-40 to avoid getting caught in a new downtrend.
In mean reversion, what we're trying to capitalize on is the elastic band. We're gonna buy when it's oversold, stretched, and then we're selling when it snaps back. Notice that that snapback occurs really, really quickly. And often after the snapback, there can be another collapse in price. So you've gotta make sure your mean reversion trading strategy is nimble when you buy after a small increase in price or a small move in your favor, you wanna get out. Exits like one profitable close in your favor or two profitable closes in your favor, or the RSI 2 popping up to a value of 30 or 40, really quick nimble exits because that'll get you out with the bulk of the profit and it gets you out of harm's way. 'Cause often with mean reversion after the bounce, there can be another collapse because sometimes that initial oversold is the start of a new downtrend. And if you don't get out quickly, you're gonna buy that downtrend as it progresses.
