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Averaging down a losing position in a mean reverting situation

Yesterday, I went off piste and did something 'dirty'. I averaged down on a trade. It was an intraday trade and the thought process went something like this. There is

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قديم 23-02-2012, 12:33 PM
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افتراضي Averaging down a losing position in a mean reverting situation

Averaging down a losing position in a mean reverting situation

Yesterday, I went off piste and did something 'dirty'. I averaged down on a trade. It was an intraday trade and the thought process went something like this. There is a screen shot to accompany what I did.

a) Yesterday opened in range on ES

b) Price struggled to make it past 59.75 area, the VPOC from Tuesday. T&S showed sellers coming in heavily here. Delta progressively -ve

c) Figure my trade opportunity is when 55.75 gets busted. This level has been held but I can see sellers overwhelming buyers generally on higher TF.

d) Go short at 56.25

e) Buyers show up, see some fight. It has immediately gone off side so I am anticipating bailing.

f) Gets to about 58 and I think to myself that today looks like it is mean reverting and am confident that gap will close (60.25) and turn

g) I hold until it gets to the gap close at 60.25 and wait a couple of minutes that it is running out of steam. I go short at 59.75. My average price moves up to 58. I have doubled my risk but am confident today is a mean reverting day due to the choppiness seen whilst the initial balance was forming.

h) It sells off again and I exit when it gets a bit sticky at 56.75

Was I just lucky there considering that it was fairly obvious that nobody wanted to trade above Tuesday's VPOC or would some consider Averaging down in this kind of scenario a viable strategy? I am at pains to point out that the day was not an OTD or ORR or OD so felt comfortable that the 2-way auction creating the chop was setting up for a mean reverting kind of day.

The only point of hesitation I had was when it got to 58 and whether to half my risk back to normal. I chose not to.

Incidentally the 55.75 did get busted with a low at 53 with no extension past the gap close high of 60.25

Attached Thumbnails Averaging down losing position mean reverting situation 130240d1329988022t-a


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