Almost every trading strategy is a flavour of one of two philosophies: trend following or mean reversion. Knowing which one you're using — and when each works — clears up a lot of confusion.
Trend following
The bet: a move in motion tends to continue. Trend followers buy strength and sell weakness, aiming to ride a move for as long as it lasts.
- Works best in trending markets.
- Typical profile — lower win rate, but big winners that outweigh small losers (a strong risk-reward).
- Tools — moving averages, breakouts, Supertrend.
Mean reversion
The bet: price stretched too far from its average will snap back. Mean-reversion traders buy oversold dips and sell overbought rips.
- Works best in ranging markets.
- Typical profile — higher win rate, but smaller wins and the occasional large loss when a "range" becomes a trend.
- Tools — RSI, Bollinger Bands, support/resistance.
The crucial point
The two approaches fail in each other's conditions. Trend following gets chopped up in ranges; mean reversion gets run over by trends. The classic mistake is using a range strategy in a trend (selling a strong uptrend) or vice versa.
What to do
Pick the approach that fits your temperament, learn to recognise the market regime you're in, and don't force a strategy onto the wrong conditions. When unsure, trade smaller.
Both philosophies work — in their own weather. Most losing streaks are the right strategy used in the wrong market.
Education only — not financial advice.