Which type of technical system involves buying low and selling high within a trading range?

The chosen answer, which identifies the type of technical system that focuses on buying low and selling high within a trading range, is known as reversion to the mean. This approach is built on the premise that prices, after deviating significantly from their average levels, will tend to return to those averages over time. In a clearly defined trading range, this system takes advantage of the fluctuations within that range, allowing traders to buy when prices are at the lower end and sell when they reach the upper end.

Reversion to the mean strategies require a deep understanding of support and resistance levels, as well as other technical indicators that suggest when prices are either overbought or oversold. The core idea is that price movements are not permanent, and thus the strategy capitalizes on the inherent tendency of markets to normalize after reaching extreme levels. This technique can be very effective in sideways markets where trends are minimal, making it a useful tool for short- to medium-term traders.

In contrast, trend-following systems aim to capture profits by riding the momentum of established trends rather than focusing on price reversions within a range. Pattern recognition systems rely on identifying specific chart patterns, which often indicate potential price movements but do not inherently revolve around the concept of mean reversion.