Don’t be a greedy little piggy

The price of Lean Hogs fell 15% yesterday.

It’s been a while since I traded this contract but similar to references I have made recently about extremes whether its been the Nasdaq or the Gold and Lumber prices…..

…is to expect a reversion when prices move to extended amounts of percentages either side of a mean.

In the daily chart below, you can see how the price of Lean Hogs tends to ‘re-visit’ its 200 day moving average with regular occurrence and especially when it trades greater than 20% beyond that line.

One needs to understand the probability of entering a new trade once this commodity has traded 20% or so beyond its 200 day moving average.

What sort of risk is being taken in order to squeeze out an extra 10% of return in a commodity which has a propensity of reverting quickly?

October 13, 2020
by Rob Zdravevski

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