What it means
Mean reversion in a range means buying near support and selling near resistance, expecting price to return toward the middle. It works only while the range holds.
Why traders use it
In balanced markets, prices at the edges of a range are relatively cheap or expensive, and participants fade them. The midpoint is a natural first target.
Chart examples
Buy the low, sell the high, target the middle
How to identify it objectively
- 1Range: at least two touches of the top and two of the bottom.
- 2Filter: low trend strength (for example ADX below 20).
- 3Trigger at support: a rejection candle that closes back inside.
- 4Target the middle first, the opposite edge second.
Bullish use
- 1Rejection at range support, close back inside: long.
- 2Stop below the range low.
- 3Target the midpoint, then the top.
Bearish use
- 1Rejection at range resistance: short.
- 2Stop above the range high.
- 3Target the midpoint, then the bottom.
What confirms it
- A wick beyond the edge that closes back inside (a small sweep).
- Low ADX.
What invalidates it
- A close outside the range with follow-through.
- Trend strength rising.
How a hypothetical setup is built
Entry
On the rejection close at the range edge.
Stop
Beyond the range edge.
Target
Range midpoint first.
A hypothetical illustration of how the concept is turned into a plan, not a recommendation. Practise it on a paper account first.
Related concepts
- Market Profile & Auction TheoryMarket Profile Day Types
- Technical IndicatorsStochastic Oscillator
- Technical IndicatorsADX, +DI and −DI
Historical testing
Not tested on The Tradeskill.
Limitations: when it fails
- Every range eventually breaks; the last trade at the edge often loses.
- Narrow ranges leave little room after costs.
- Range edges are drawn subjectively.
Knowledge check
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