Hypothesis on timing entry position into loss aversion

This documentation is an extension on the strategy of loss aversion and reversion to mean. Its aim is to quantitatively identify the point in time when the effects of mass hysteria resultant from bad news has subsided.

For clearer reading of signals, entry should be done at end of day instead of beginning of day.

Successful attempts

Listed below are 3 successful entry attempts during early 2019 where a 5% capital gain were captured.

The key characteristics of these entry were:

  • >10% drop in share price
  • In the 30 day chart, sales volume is less than 10 day moving average
  • RSI of previous day was in the oversold range of <30

Proper timing of entry could result in a lower denominator to work on for the targeted 5% gain. This would result in overall lower holding period in positions.

Failed attempt type 1: Entering too early

Depicted is an example of entering the position too early

  • >10% drop in share price
  • In the 30 day chart, sales volume was still more than the 10 day moving average
  • RSI of previous day was in the oversold range of <30

Failed attempt type 2: Trading companies with too recent IPO

  • >10% drop in share price
  • In the 30 day chart, there was not enough data to plot the 10 day moving average
  • No RSI available

Related references

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