Trend following vs. mean reversion

Trend-following systems seek to participate in persistent movement. They can enter after a breakout, on a pullback, or when multiple timeframes align. Their challenge is that many entries occur before a trend develops, so a series of small losses can precede a larger winner.

Mean-reversion systems assume price may move back toward a reference after an extreme move. Their challenge is that an extreme can become the beginning of a sustained trend, causing repeated entries against momentum.

A strategy family should be tested across trending, ranging, volatile, and quiet periods. A mean-reversion result built only in a calm range is incomplete; a trend result built only in a strong bull market may be measuring beta rather than a durable process.

Use regime labels as analysis tools, not as excuses to remove every losing period. The important question is whether the expected drawdown and failure mode are acceptable when the environment changes.

Neither trend following nor mean reversion is automatically conservative. Position size, stop placement, leverage, holding time, and the number of correlated positions determine account risk. A high win rate can still hide a large tail loss, while a low win rate can be viable with sufficiently large winners and controlled losses.