Definition ∞ Mean Reversion is a financial theory suggesting that asset prices and other economic indicators tend to return to their long-term average over time. This principle posits that temporary deviations from the average are likely to correct. Traders often use this concept to anticipate price corrections in markets.
Context ∞ In cryptocurrency markets, mean reversion strategies are frequently applied given the asset class’s inherent volatility. Analysts often assess whether extreme price movements are likely to adjust towards historical averages. Understanding these dynamics is crucial for interpreting market movements and predicting potential price adjustments in digital assets.
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