{"id":6926,"date":"2021-02-11T13:33:08","date_gmt":"2021-02-11T10:33:08","guid":{"rendered":"https:\/\/roboforex.com/blog\/?p=6926"},"modified":"2026-05-26T10:55:58","modified_gmt":"2026-05-26T07:55:58","slug":"how-to-trade-by-return-to-average","status":"publish","type":"post","link":"https:\/\/roboforex.com/blog\/blog\/2021\/02\/11\/how-to-trade-by-return-to-average\/","title":{"rendered":"How to Trade by Return to Average Strategy"},"content":{"rendered":"\n

In this article, we will review a popular trading strategy<\/a> called the Return to Average. The idea of this strategy is that after a serious deviation (growth or decline), the price tends to return to its average.<\/p>\n\n\n\n

<\/span>What is the strategy based on?<\/span><\/h2>\n\n\n\n

The strategy is based on a popular statistical concept Regression towards the Mean. This theory, voiced by statistician Francis Galton<\/strong>, states that extreme deviations are usually followed by regression to normal values. Galton supported his theory by some research of human physical characteristics.<\/p>\n\n\n\n

In the world of finance, the Return to Average<\/strong> presumes that the price of an asset (or profitability) tends to normalize with time. When the current market price is higher than average, we expect it to fall in the future, and when it is below average, we wait for it to grow. In other words, this strategy is based on the expectation that after a certain deviation from the average the price will return to it anyway.<\/p>\n\n\n\n

The concept of the Return to Average gave birth to a whole range of similar trading strategies<\/a> used for all sorts of instruments. The deviation of the price from mean values is usually shown by various technical indicators<\/a>.<\/p>\n\n\n\n

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<\/span>Advantages and drawbacks of the strategy<\/span><\/h2>\n\n\n\n

Like any other one, the strategy of the Return to Average has its advantages and drawbacks.<\/p>\n\n\n\n

The advantages are:<\/p>\n\n\n\n