Guide · 15 plays
Mean reversion: what it predicts, and when it works
Short, sharp moves tend to snap back. Mean-reversion plays buy a stock after a quick drop or an oversold reading and sell into the bounce, often only when the longer trend is still up.
Why it might work
Over days, prices overshoot on forced selling, liquidity gaps and emotional trading, then market makers and bargain hunters pull them back. The effect is strongest for liquid, stable stocks and indexes.
When it fails
When the dip keeps dipping. Mean reversion buys falling prices, so in a real crash it buys too early and holds a loser. It also sits in cash much of the time, missing steady rallies.
What the research says
- Jegadeesh (1990) and Lehmann (1990) found that stocks that fell most over the last week or month tended to rebound the next one: short-term reversal.
- De Bondt and Thaler (1985) found the same over 3 to 5 years: long-term losers beat long-term winners.
- Larry Connors and Cesar Alvarez (2009) popularised short-term rules like the 2-period RSI, which buy pullbacks only above the 200-day average.
Every mean reversion play, ranked
Share of stocks where each play did better than holding, since 2005 or as long as the stock has traded, after costs. Click a column to sort.Sort with the menu above the list.
| Play | Beat holding, risk-adjusted | Cut the worst fall | Beat holding on return | Calls right | Switches / yr | Time in | In now |
|---|---|---|---|---|---|---|---|
| IBS ReversionAlexander S. Pagonidis | 26% | 92% | 19% | 57% | 82.9 | 21% | 61/377 |
| Double 7sLarry Connors & Cesar Alvarez | 23% | 94% | 16% | 63% | 17.4 | 29% | 96/377 |
| 1-Month ReversalNarasimhan Jegadeesh & Bruce N. Lehmann | 21% | 93% | 15% | 59% | 6.0 | 50% | 255/377 |
| Connors %bLarry Connors & Cesar Alvarez | 18% | 97% | 12% | 58% | 4.3 | 18% | 88/377 |
| Fisher TransformJohn F. Ehlers | 18% | 73% | 18% | 37% | 48.6 | 51% | 248/377 |
| DeMark 9-CountTom DeMark | 17% | 94% | 13% | 62% | 3.3 | 40% | 205/377 |
| Stochastic 20/80George C. Lane | 16% | 90% | 13% | 63% | 7.2 | 41% | 242/377 |
| Bollinger ReversionJohn Bollinger | 15% | 96% | 17% | 64% | 8.5 | 22% | 105/377 |
| RSI(2) PullbackLarry Connors & Cesar Alvarez | 15% | 98% | 12% | 60% | 13.8 | 11% | 39/377 |
| Mayer MultipleTrace Mayer | 13% | 7% | 13% | 82% | 0.0 | 100% | 375/377 |
| Williams %RLarry Williams | 12% | 85% | 12% | 61% | 12.9 | 45% | 233/377 |
| Laguerre RSIJohn F. Ehlers | 11% | 81% | 10% | 47% | 14.8 | 48% | 236/377 |
| ConnorsRSI PullbackLarry Connors & Cesar Alvarez & Matt Radtke | 11% | 100% | 9% | 59% | 1.1 | 1% | 6/377 |
| RSI 30/70J. Welles Wilder Jr. | 10% | 94% | 10% | 62% | 1.8 | 38% | 156/377 |
| StochRSI 20/80Tushar S. Chande & Stanley Kroll | 10% | 82% | 10% | 55% | 19.8 | 51% | 203/377 |
When it worked
The family did best against holding in the 2008 crash (+20% median gap) and worst in the 2020–21 rally (−27%). Median gap in return against holding (per year over stretches longer than 18 months; crypto excluded).
| 2008 crash | Recovery 2009–19 | COVID drop | 2020–21 rally | 2022 bear | Since Oct 2022 | |
|---|---|---|---|---|---|---|
| Mean reversion | +20% | −10% | +9% | −27% | +9% | −8% |
Where it worked
By kind of stock: how often the family's plays beat holding on risk-adjusted return, and the median Sharpe ratio gap.
| Group | Beat holding, risk-adjusted | Sharpe gap |
|---|---|---|
| Micro caps | 49% | -0.00 |
| Metals & mining | 24% | -0.14 |
| Industrials & rentals | 21% | -0.16 |
| Media & telecom | 19% | -0.16 |
| Energy & power | 18% | -0.17 |
| Healthcare | 16% | -0.16 |
| Real estate | 15% | -0.17 |
| Industrials & materials | 14% | -0.19 |
| Software & devices | 14% | -0.22 |
| Consumer & retail | 14% | -0.21 |
| Semiconductors | 12% | -0.23 |
| Sectors | 11% | -0.17 |
| Financials | 9% | -0.23 |
| Indexes & ETFs | 5% | -0.21 |
| Big tech | 3% | -0.34 |
How traders use it
- High hit rate, small wins: most trades work, a few big losses decide the result.
- The trend filter matters: buying dips in a long uptrend is a different bet from buying dips in a downtrend.
- Costs bite, because these rules trade often.
Right now
The mean reversion plays hold 45% of the stock-and-play combinations Be The Puck tracks (2,548 of 5,655) as of the Oct 13, 2026 close.
See which stocks each family holds · The plays and their rules
This analysis does not constitute trading advice. Please meet with an advisor or independently review sources before making any decision.