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What this basically means is that if a stock, commodity or currency gets a bit extended in price, it will tend to snap back to some sort of long term average price. Mean reversion may involve a myriad of strategies, such as short term overbought and oversold oscillators, regression channels, Bollinger Bands, moving averages, etc.

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Because they are essentially trying to pick tops and bottoms while trying to take advantage of a quick, but significant move in the opposite direction, or to the mean. Or, if a stock is in a downtrend, and has sold off sharply, a quick snap back to that moving average may also be expected.

The key is the entry price. If a stock is extended in price to the upside and loses upside momentum, the trader will simply short the stock and place a stop somewhere pretty close to the highs. This is the type of risk and reward setup an experienced trader will look for.

However, the danger is that if the trader goes short and holds the position overnight, the stock could gap through his stop loss, and hand the trader a sizable loss. For this type of strategy, many daytraders choose to exit their position at the close to avoid this type of occurrence.

No matter what type of strategy the daytrader employs for entering and exiting positions, the long term key to success of the trader will be the proper use of risk management, and strong discipline. In order to have confidence in your strategy, it is important to conduct significant trading strategy research. Having confidence in the strategy you select through sound research should result in an ability to have the discipline to stick with the strategy through periods when it is not performing well.

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Don’t forget to learn about mutual funds in retirement plans. For 401k Plan advice, 401k asset allocation, 401k investment advice and a 401k investment strategy. It is important to your retirement account to be educated about 401k allocation and a 401k strategy.

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