Angie · learn
Mean reversion
The tendency of a stretched price to drift back toward its own average. Angie measures how often that actually happened for a name rather than assuming it will.
A fuller explanation of this one is still being written. The definition above is the short answer.
See also
- Z-score — How many standard deviations today's price sits from its recent average. Two sigma below means a move this far down happened on roughly one day in forty.
- Bollinger bands — A moving average with bands drawn two standard deviations above and below it. Price at a band is unusual relative to its own recent range, not relative to any other stock.
- RSI — A 0 to 100 gauge of how one-sided recent moves have been. Conventionally below 30 is oversold and above 70 overbought, though a strong trend can hold an extreme for weeks.
- Backtest — Running a set of rules over history to see what they would have done. It shows what did happen, never what will, and it flatters any rule tuned on the same data.
Educational content, not investment advice. Angie explains how a valuation is built so you can judge it yourself. What you do with that is your call.
