Mean Reversion
The tendency of price to return toward an average after extremes — the logic behind fading overextended moves.
Mean reversion is the idea that prices stretched far from an average tend to snap back toward it. Mean-reversion strategies fade extremes — buying when price is stretched below a moving average or oversold on RSI, selling when overextended — betting on a return to the mean.
It’s the philosophical opposite of trend-following, and which one works depends entirely on the regime: mean reversion thrives in range-bound markets and gets destroyed in strong trends (where “overbought” stays overbought). Crypto’s tendency toward violent, persistent trends makes naive mean-reversion especially dangerous — “it’s oversold, it must bounce” has bankrupted many. The skill is knowing which regime you’re in.