Does Averaging-In Work?

Ron Schoenberg as well as Al Corwin of late did around interesting research on the trading technique of "averaging-in". For e.g.:  Let's enjoin you lot bring $4 to invest. If a future's cost of late drops to $2, though you lot await it to eventually revert to $3. Should you

A) purchase 1 contract at $2, as well as hold back for the cost to possibly drop to $1 as well as so purchase ii to a greater extent than contracts (i.e. averaging-in); or
B) purchase ii contracts at $2 each;  or
C) hold back to possibly buy four contracts at $1 each?

Let's assume that the probability of the cost dropping to $1 1 time you lot bring reached $2 is p. It is tardily to run into that the average profits of the three options are the following:
A) p*(1*$1+2*$2) + (1-p)*(1*$1)=1+4p;
B) 2; and
C) p4*$2=8p.

Profit Influenza A virus subtype H5N1 is lower than C when p > 1/4, as well as profits Influenza A virus subtype H5N1 is lower than profits C when p > 1/4. Hence, whatsoever p is,  either selection B or C is to a greater extent than profitable than averaging in, as well as thence averaging-in tin never last optimal.

From a backtest indicate of view, the Schoenberg-Corwin declaration is impeccable, since nosotros know what p is for the historical period. You mightiness argue, however, that fiscal markets is non quite stationary, as well as inwards my example, if the historical value of p was less than 1/4, it is quite possible that the hereafter value tin last to a greater extent than than 1/4. This is why I never brand likewise much endeavour to optimize parameters inwards general, as well as I tin sympathise alongside traders who insist on averaging-in fifty-fifty inwards the confront of this company slice of research!