The Trauma of Mean Reversion

Vital Therapies (VTL)
Vital Therapies (VTL)

I have this mean-reversion trading system I’ve been paper-trading for awhile, and decided to take it live with a few days ago. Vital Therapies (VTL) showed up in my scan, so I set the appropriate limit order, and entered the trade on July 24th. You can see my entry price at the horizontal line above.

It then proceeded to drop and drop and stay dropped. At one point I was down over 20%!

This system has a ‘hard’* stop loss of 30%…yes, 30%. So you don’t bet big chunks of change on any single trade, that’s for sure. It has a high hit rate though, which I’m always fond of. Profit target of 6%, and a maximum hold of 5 days.

I never hit my stop, and then on the day I was to sell it anyway, it popped up 18% from the previous close. I ended up selling at the close of the day at $0.01 less than my profit target.

Talk about a white-knuckle ride.¬†Emotionally these trades are a little tough to handle. You’ve got to basically kiss your 30% goodbye (or more, if there’s a hap) at the start of the trade, and then welcome in back with open arms five days later.

But they are more memorable, like prodigal children, when they come back. Unlike the momentum trades that always behaved themselves.

P.S. VTL is up another 14% intraday as I write. Talk about a stock that moves…BOTH directions.

* “hard” as in triggered intraday¬†with a standing sell order at my broker. A “soft” stop is one that is triggered based on open or close, usually sold the next day.

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