MEAN DEPARTURE STRATEGIES

If fade and reversal trades depend on price returning to the mean, specifically a swing higher in an uptrend returning back to the rising moving average, or a long-term uptrend trend reversing and falling lower to a lower average price, then mean departure strategies depend on price trading at or near the average price and then moving away from that average price. Instead of expecting price to return to the mean, we expect it to depart from it as the next likely swing in price.

Our final two types of trade setups build upon this concept of mean departure, and best fit within the context of a market in range expansion mode breaking out of an established trading range, or rising in the context of a prevailing uptrend. Specifically, we can label these types of trades classic breakout trades, with which you are no doubt familiar now, and retracement trades. Let's examine them both.