Morning Thoughts – Mean Reversion

Friday I chatted with a fellow, who you might consider an “Industry Veteran”. I just wanted to talk about technical indicators or and methods for building an indicator from scratch, in Tradingview. I wasn’t even really talking about trading, and making big money, and this guy says I’m a gambler, and that I’m going to “blow up” my account in 9 months. This guy was down right mean. To try an humiliate me because I don’t have a certification, or know my sharpe ratio, or have a written plan of how I’m going to trade? I didn’t even mention trading…

I don’t mean this kind of mean. In math, the mean is the average. 4+5+6=15, the average of these three is 5. Reversion is to return to a previous state, practice, or belief. So “mean reversion” would be for the chart to return to the mean.

Mean Reversion example 1

You can see in the first example, the chart gets away from the mean or the average running down the middle of the price. The chart and the timeline don’t matter at this point, because this same occurrence will happen on all timelines, such is life. Taking a break from this; blowing up my account can wait, lets ramble about natgas…

What’s going on with Natgas?

Production is returning to pre-hurricane levels and weather forecasts are not so great. Storage is still at a substantial surplus. This could have prices working on a pull-back until a little more storage surplus is swallowed up.

EIA Natgas Storage Dashboard Scatter Plot: Price vs Storage Surplus

The above is still showing November contract pricing on the scatter plot. Roll to December, and the price is closer to $3.30 on Thursday. $3.30 is getting close to to top of this historical range of price vs storage comparison. I’m not expecting much to the upside this week. This week EIA will show a storage draw, but that big news has already made it’s way through the market since most everyone already saw the early storage draw coming. You might say the market is having a moment of mean reversion back to the 20 day moving average. I’m actually tempted to go more long in UNG, as I only have 2 shares or 1% of my account invested, but I’m going to wait a while today to see what happens. If the market decides to rocket back upward, that’s what I’m holding UNL for. Plus, I’m out of time for today. I’ll have to finish talking about mean reversion and show my backtesting another time.

My positions as of 11/2/2020

SLB is looking better, I’ll be looking that over today and hope to have a plan to improve that trade soon. I missed exiting KOLD on Friday. I forgot about it, then remember at market close and it was too late. It would have been nice, but I’ll see it again soon enough. I feel it is a good day to hold and keep any eye on possible dips in NG prices. Then again, I’m busy with the day job. Good Luck

Oldinvestor

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