Nat Gas, from George Coyle

January 20, 2012 |

 The destruction of Nat Gas continues and at these prices I am inclined to wonder if/when "value" players might enter the fray. Nat gas has been down 7 days running examining close to close prices. From 1/2000 to 12/2011 this has happened 22 times (out of 3008 days). The odds of it going up from yday's close to the close in 5 days are 50/50 but the magnitude of the losses offset those of the gains historically. Interesting that even after so many down days that history expects continued losses in the next few, and today's price is acting accordingly. If modeling this with a stop loss, positive expectations can be found but the frequency of winners decreases significantly from the 50/50 as the stop is often triggered in the following days. Aside from being a mean reverting method vs trending, this strikes me as something the turtles might have employed based on Curtis Faith's books. A system which takes a bunch of small losses and offsets the small losses with few large gains. To the statisticians on the list, what are the detrimental impacts of pursuing such a strategy?


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