Every term is defined twice: once the way a filing would put it, and once the way somebody would explain it to you across a table. The second one is usually the one that sticks.
Showing 5 terms
A strategy that buys weakness and sells strength, expecting price to return towards an average.
The rubber band. Wins often, loses large, and works only where the fall was movement rather than information.
Movement in a chart caused by consecutive trades printing on opposite sides of the spread rather than by any change in value.
Nobody transacts at the middle of the market, so a series of last traded prices zig-zags between the bid and the offer even on a day when nothing happens. It widens every bar by roughly one spread, and it manufactures apparent mean reversion in thin stocks.
The tendency for company-specific surprises to partly cancel out within an index, leaving it less volatile than its constituents.
It is why mean reversion has a genuine basis on an index and a shaky one on a single stock.
The statistical properties an index has by virtue of being a weighted average of many stocks rather than a single one.
Lower volatility, milder gaps, stronger mean reversion, almost no company-specific risk. Different enough to justify genuinely different rules.
The risk of a rare, very large loss well outside normal expectations.
What mean reversion trades away its high win rate for. The one position that never comes back is the whole risk in that style.