This model identifies the mechanical tug-of-war between market forces. The A-Process represents the surge of Momentum, where aggressive capital flow drives an asset away from its baseline; the B-Process is the inevitable Mean Reversion—the statistical counter-force that pulls the price back toward equilibrium as that initial move reaches exhaustion.
Momentum is a financial concept suggesting that an asset’s price trajectory is likely to persist over a specific horizon. In a bullish environment, investors buy assets with strong performance, anticipating that the established uptrend will continue. Conversely, in a bearish environment, they sell assets with poor performance, expecting the downtrend and downward velocity to remain in effect until a shift occurs.
Mean reversion is a financial concept that suggests asset prices and returns will eventually move back toward the average over time. Investors using this strategy buy assets that are undervalued, anticipating their prices will increase back to the mean. Conversely, they might sell assets that are overvalued, expecting their prices to decrease.