Mean reversion is a universal element of the world we live in.
Reversion to the mean is a statistical phenomenon stating that the greater the deviation of a variable from its mean, the greater the probability that the next measured variation will deviate less.
In other words, an extreme event is likely to be followed by a less extreme event.
In financial markets, mean reversion is everywhere. This is especially the case in bear markets when prices dramatically rally following prolonged periods of sustained weakness.
As John Roque, one of the GOATs of technical analysis, would say, "We’re not in a reversion to the mean business. This is instead a reversion beyond the mean business."
Specifically, asset prices retracing to their statistical average isn't the rule, it's the exception. Rather, in most cases, asset prices will often overshoot their "averages."
With crypto markets bouncing over the last week, it raises the question, is this just yet another mean reversion rally, or does this move have some legs?
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