Every trader eventually faces the same question: should I ride the wave of a trend or bet on prices snapping back to their average? These two philosophies, trend following and mean reversion, sit at the heart of modern trading. Both approaches have long histories, both can be profitable, and both require discipline. The difference lies in how you read market behavior and how you position yourself in response to it. For instance, monitoring a company’s stock price for sustained upward moves can inform trend-following decisions, while noticing deviations in a stock price from its historical average may signal mean-reversion opportunities.
 

Event-driven situations also play a role. Significant changes such as mergers, restructurings, or shifts in management can directly influence how a stock trades. In cases of takeovers, the offer price often becomes a focal point for traders looking to profit from potential gaps between market value and acquisition terms. These dynamics not only create opportunities for different strategies but can also increase shareholder value when executed effectively.
 

In this article, we’ll explore how advanced trend following and mean reversion strategies work, what makes them different, and how they can even be combined with event-driven strategies for a more resilient portfolio.
 

Framing advanced trend following vs. mean reversion strategies

 

Why compare these investment strategies

 

Comparing trend following with mean reversion isn’t about declaring a winner. Instead, it’s about understanding the strengths and weaknesses of each, so you can decide which aligns with your goals, time horizon, and appetite for risk. A trend follower sees momentum as their friend, often tracking a company’s stock price or overall stock price trends to ride sustained price moves. In contrast, a mean reversion trader sees stretched prices as unsustainable and looks for opportunities to profit when a stock price snaps back to its average.
 

Event-driven scenarios also highlight the differences. For example, in a merger deal, traders may watch the acquirer’s stock for signs of weakness or strength while simultaneously purchasing shares of the target company to capture spreads. Some traders even combine these approaches with event-driven strategies, using news or corporate actions to enhance timing and entry points.
 

Market regimes and historical performance

 

Markets don’t move in straight lines. Sometimes they trend strongly for months, such as during bull markets, while at other times they oscillate within ranges. Historically, trend-following systems thrive in persistent trends, often tracking a company’s stock price or overall stock price movements to ride momentum, but they struggle in sideways markets. Mean reversion strategies often excel in choppier conditions, capturing profits when stock prices snap back from extremes.
 

Successful traders know that careful analysis is essential, since market regimes can shift with changes in interest rates, monetary policy, or broader economic conditions. These factors directly influence investment decisions and can determine which strategy performs best at any given time. Some traders combine these approaches with event-driven strategies, using corporate news or earnings announcements to enhance entries and exits.
 

Principles of Advanced Trend Following

 

Momentum indicators and trend filters

 

Advanced trend followers rely on tools like moving averages, MACD, or ADX to confirm momentum. Trend filters, such as requiring the stock price or market price to stay above a long-term moving average, help avoid false signals. By layering multiple indicators, traders increase the odds of capturing genuine moves rather than noise. Some also combine these methods with event-driven strategies, adjusting their positions when corporate news or earnings announcements are likely to influence the stock price.
 

In some cases, traders adopt a market neutral stance, hedging positions to reduce directional risk while still capitalizing on momentum or mean reversion signals. This requires a deep understanding of how the market digests new information, since news or data releases can shift sentiment quickly and affect the effectiveness of trend filters.
 

Position sizing and risk management for trend systems

 

Trend following requires patience and strong risk management. Traders often risk a fixed percentage of their capital per trade and use trailing stops to lock in gains as the trend develops. Position sizing ensures that no single trade wipes out the portfolio during inevitable losing streaks. Some traders also integrate event-driven strategies, adjusting positions when corporate events, such as earnings announcements or M&A news involving a target company, are likely to influence the trend. In merger situations, for example, competing bids can drive the stock higher, while regulatory hurdles may stall the deal or even push shares to a lower price, directly impacting how the trend unfolds.
 

Example trend-following scenario

 

Imagine a forex trader watching EUR/USD break above its 200-day moving average with rising volume. They enter long, set a stop-loss just below the breakout level, and trail the stop higher as the price climbs. If the trend continues, profits accumulate; if not, the stop protects the downside. Similarly, a trader following a stock might adjust exposure ahead of a corporate event affecting a target company, blending trend-following signals with event-driven strategies to optimize risk and returns.
 

Principles of Mean Reversion Strategies

 

Statistical signals and mean-reverting setups

 

Mean reversion assumes that prices eventually return to their historical average. Traders use Bollinger Bands, RSI, or z-scores to identify overbought or oversold conditions. When prices stretch too far, the expectation is for a pullback toward the mean. Some investors combine these mean-reverting setups with event driven investing, adjusting positions around corporate events such as earnings releases, restructurings, or M&A announcements. In certain cases, credit rating changes or unexpected price discrepancies across related securities can provide additional signals that align with mean-reversion logic. By anticipating the impact of corporate events, traders can enhance traditional statistical signals, improve the timing of their trades, and occasionally capture substantial returns when the market snaps back to equilibrium.
 

Stop management and drawdown control

 

Because prices can stay irrational longer than expected, mean reversion strategies require strict stop management. Without discipline, a trader could hold onto a losing trade far too long. Advanced practitioners combine statistical triggers with protective exits to keep drawdowns manageable. Some traders also incorporate event driven investing principles, adjusting positions around corporate events or market-moving announcements such as earnings reports or cost cutting measures that may temporarily distort share prices and create mean-reversion opportunities.
 

Example mean-reversion trade

 

Suppose a stock rallies 15% in two days, pushing RSI above 80. A mean reversion trader might short the target company's stock, expecting a pullback toward its average price. They place a stop above the recent high to limit risk and a target near the mean. Combining this approach with event driven strategies can help traders anticipate price swings caused by earnings reports, mergers, or other catalysts that can drive short-term volatility in share prices.
 

Comparing Trend Following and Mean Reversion

 

Performance in trending vs. mean-reverting markets

 

The core difference lies in market conditions. Trend following thrives when momentum builds, while mean reversion does better when prices oscillate. This makes them complementary — one fills the gaps left by the other. Advanced traders often combine these approaches with event driven investing, adjusting positions around corporate events that may impact a target company's stock. Events such as spin offs or operational improvements can create price dislocations that trend followers or mean reversion traders can exploit. In some cases, they may even take a long position in one security and a corresponding short position in another to hedge risk and capture relative value opportunities. Doing so helps them manage risk from both individual securities and broader market movements, capturing opportunities while reducing exposure to unexpected swings.
 

Impact of volatility and regime changes

 

Volatility can benefit both strategies but in different ways. Trend followers need sustained volatility in one direction, while mean reversion traders rely on sharp swings that quickly fade. Shifts in market regimes, such as moving from low-volatility consolidation to high-volatility breakout, can determine which strategy dominates. Traders combining these approaches with event driven investing may also monitor merger arbitrage opportunities, where sudden moves in a target company's stock price create short-term inefficiencies to exploit.
 

Event-Driven Strategies and Corporate Events

 

What are event driven strategies

 

Event-driven trading strategies focus on specific catalysts, such as earnings announcements, mergers, or policy shifts. Unlike trend following or mean reversion, these strategies zero in on news and how it alters expectations, making them a core component of event driven investing.
 

How corporate events (earnings, M&A) trigger market reactions

 

Corporate events often spark short-lived volatility. Earnings beats can push stocks higher, while merger rumors may send valuations soaring or crashing. Traders may also engage in merger arbitrage, positioning around announced deals to capture price inefficiencies in the target company's stock. Event-driven trading strategies aim to exploit these opportunities, either ahead of, or immediately after, such announcements.
 

Earnings announcements and short-term opportunities

 

For instance, traders may speculate on volatility around Apple’s quarterly results. Even if the long-term trend remains intact, earnings can cause sharp intraday moves, creating opportunities for short-term profits. These situations are a prime example of event driven trading strategies in action. Some traders integrate such moves into broader event driven investing approaches, while others combine earnings plays with merger arbitrage positions when corporate actions are announced simultaneously.
 

Event-Driven Investing and Hedge Funds

 

How hedge funds deploy event driven investing strategies

 

Hedge funds are major players in event driven strategies. They build teams to analyze upcoming events and deploy large sums when catalysts appear. For them, events are opportunities to capture alpha uncorrelated to the broader market. These strategies can involve trading equities around earnings, taking positions in corporate bonds ahead of credit events, or engaging in merger arbitrage to profit from announced acquisitions.
 

How event driven investing work in practice

 

In practice, funds engaging in event driven investing may take long positions in companies expected to benefit from corporate actions and hedge with shorts elsewhere. They aim to exploit pricing inefficiencies that arise before the market fully reflects new information. Timing and research are critical, since the window for profits is often narrow. Merger arbitrage is a common example, where traders buy the target company’s stock after an acquisition announcement while shorting the acquirer to capture the spread.
 

Distressed investing and activist investing as event plays

 

Event-driven approaches extend beyond earnings. Distressed investing targets companies facing bankruptcy or restructuring, while activist investing involves buying stakes in underperforming companies and pushing for change. Both are advanced forms of event driven investing that rely on spotting opportunities created by specific corporate events.
 

Building Hybrid Investment Strategies

 

Combining trend, mean reversion and event driven approaches

 

No single strategy works in all conditions. Savvy traders blend methods. A portfolio might include long-term trend following positions, short-term mean reversion trades, and event-driven opportunities. This balance reduces reliance on one market regime. Event-driven trades, for instance, can target pricing inefficiencies that arise from mergers, restructurings, or earnings surprises. In some cases, activist investors also use event-driven strategies to influence corporate governance, pushing for changes that they believe will unlock shareholder value.
 

Portfolio construction, correlation and risk diversification

 

Diversification across strategies is as important as diversifying across assets. By mixing uncorrelated approaches, traders smooth returns and minimize drawdowns. Risk parity techniques can help allocate capital fairly across strategies. For example, while some traders may focus on the current stock price of publicly traded companies, others may look at broader event-driven opportunities such as distressed investing, where companies under financial pressure present unique risk–reward dynamics.
 

Implementation checklist and monitoring plan

 

• Define clear rules for each strategy.

• Allocate capital proportionally based on risk.

• Monitor correlations between strategies.

• Review performance regularly and adjust allocations.
   

Trend following and mean reversion represent two sides of the trading coin. One rides momentum, the other bets on reversals. Both can be profitable when applied with discipline, and both become even stronger when paired with event-driven opportunities.
 

For beginners, the best path is to experiment with demo accounts before risking real capital. Platforms like 24markets.com offer access to forex, stocks, indices, and CFDs with the tools needed to practice trend following, mean reversion, and event-driven strategies safely.
 

The key is to recognize that no single approach wins all the time. By mastering multiple methods and learning how to adapt to market regimes, traders can build robust strategies that thrive in different conditions.