Here's my question: While the 8 SMA has been up 24
straight days, it appears this indicator is hugging the price
line. In other words, if I place the trade and place a sell
order when price closes below the 8 SMA, the percentage gain
is likely to be small, unless of course the market falls off a
cliff. Absent that scenario, I suspect placing this
trade calls for the individual to put up more $$ than
usual, simply because the expected gain (while near certain since
it has occurred 100% of the time) will be small on a percentage
basis. Am I correct?
hello thanks richieD, yes these exhaustion trades are always
small gains, it's not a 3:1 reward/risk ratio generally, it's just
looking for a simple mean reversion.
The SPY Pro system also has this trade in it, those trades are
the same way, the gains are small but high probability.
A far stops one could use a stop above the max historical draw
down, or not use a stop and just close the trade out on a close
back below the 8 SMA. You take some heat if it goes against
you but we all know it eventually will close back below that
MA.
here's a couple examples of the trade on the SPY Pro system, the
logic has been in place for a couple years
again I'm simply pointing out to you a statistical event, you
guys choose to take action or not. I'm just the
messenger.
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Exhaustion Trade
Posted by RichieD on 20th of Nov 2014 at 05:38 pm
Love the work you've done on this Matt.
Here's my question: While the 8 SMA has been up 24 straight days, it appears this indicator is hugging the price line. In other words, if I place the trade and place a sell order when price closes below the 8 SMA, the percentage gain is likely to be small, unless of course the market falls off a cliff. Absent that scenario, I suspect placing this trade calls for the individual to put up more $$ than usual, simply because the expected gain (while near certain since it has occurred 100% of the time) will be small on a percentage basis. Am I correct?
hello thanks richieD, yes these
Posted by matt on 20th of Nov 2014 at 05:47 pm
hello thanks richieD, yes these exhaustion trades are always small gains, it's not a 3:1 reward/risk ratio generally, it's just looking for a simple mean reversion.
The SPY Pro system also has this trade in it, those trades are the same way, the gains are small but high probability.
A far stops one could use a stop above the max historical draw down, or not use a stop and just close the trade out on a close back below the 8 SMA. You take some heat if it goes against you but we all know it eventually will close back below that MA.
here's a couple examples of the trade on the SPY Pro system, the logic has been in place for a couple years
again I'm simply pointing out to you a statistical event, you guys choose to take action or not. I'm just the messenger.