RSI Mean Reversion

Mean reversion strategies profit from the tendency of price to return to its average after extreme moves. When RSI reaches oversold (<30) or overbought (>70) territory on H1/H4, there's a statistical tendency for price to snap back.

For prop firms, this provides high-win-rate entries (65–75%) with moderate R:R (1:1 to 1.5:1). The high win rate reduces the emotional stress of consecutive losses.

Buy setup (mean reversion long): 1. RSI(14) drops below 30 on H1 or H4 2. Price is at or near a support level 3. A reversal candle forms (hammer, bullish engulfing) 4. Enter on the next candle open 5. Stop loss: below the reversal candle low 6. Take profit: the 50 EMA or previous swing high

Sell setup: mirror of above with RSI above 70 at resistance.

Critical filter: Do NOT fade strong trends. If the 50 EMA is sloping steeply, the RSI extreme might be the start of a new trend, not a reversal.

Expected metrics: - Win rate: 65–75% - Average R:R: 1:1 to 1.5:1 - Expected value: 0.4R to 0.6R per trade - Frequency: 2–4 trades per week

The high win rate means fewer drawdown periods, which helps with both max drawdown and daily loss management. Risk 0.5–0.75% per trade for conservative sizing.