Spot and Trade Institutional Money Moves

Algorithmic Trading with Human Interaction for:

Day Traders, Swing Traders, Long-Term Investors

Wednesday, January 19, 2022

Why Most Trading Strategies Fail

 Traders forecast price behavior based on assumptions. We share how to find a model that helps you make sound decisions, using a price distribution model that differs from the regularly applied normal distribution.  

Erratic and Normal Distribution

To explain the statistical distribution of price happenings, most models, often due to the lack of better knowledge, push every behavior into a Bell curve distribution.

Normal Distribution Explained

If price behavior is normally distributed, a simple strategy for making money would be to open positions around the 2-sigma (2-standard deviation) band around the actual average price and predict that prices stay in that range 95% of the time: collecting income with a probability of 95% to keep it.

Hence, we could sell two credit spreads (an iron condor) at the outer borders of the price range and collect 10 cents on each trade side of one-dollar spreads. If the statistic adds up, you would always make money long-term; however, let us calculate the case and see what reality tells us:

  • To achieve a 10 cent premium income on the Put and Call side, 30 days to expiration, on a $1 spread, we need to move to a delta of 10 or ±0.10.
  • The option delta ten tells us that the market maker statistics assume there is a 90% chance for the chosen strike price to sell that it comes in the money during the time to expiration.

Let us state the mathematical facts and calculate an expected return of this correlation using SPY, ETF of the S&P 500 Stock Market Index, for one contract, controlling 100 shares.

In the Event of Winning the Stock Options trade (selling an iron condor), your income per contract would consist of the following:

  • Premium Collected: $20.00
  • Commission Paid:   $  2.60 ($0.65 per leg)
  • Net Income:             $17.40

In the Event of Losing:

  • Loss of the spread:  $80.00 (spread – premium collected)
  • Initial Commission:  $  2.60 ($0.65 per leg)
  • Closing Commission: $ 1.30 (one leg)
  • Slippage (1 cent):    $  1.00 (to close one leg)
  • Net Loss:                 $84.90

Trade Expectation with probabilities:

  • Winning:  90% * $17.40 = $15.66
  • Losing:    10% * $84.90 = $  8.48
  • Expected Income:             $   7.81  

On an Investment $82.60 an 8.7% ROC (return on capital) per month

Hence, you would trade for an average 8.7% return on capital per month. A simple calculation and strategy and you are profitable for the rest of your trading career; however, only under the condition that the price behavior of SPY follows a normal distribution.

Unfortunately, the actual price development of underlying assets is erratic and not normally distributed. Therefore, we distinguish three price happenings at the edge of upside and downside price moves and in the center of the price development.

Normal and Erratic Distribution Models Compared

Normal and Erratic Price Distribution Compared

Our schematic shows a considerable difference in actual price distribution (in color), which does not replicate the standard distribution model (blue in the background). Hence, predicting with an incorrect model leads to false conclusions and as such, making easy money in the stock market does not exist. However, you can create an edge as a retail trader by applying a different price distribution model and simple strategies.

The actual happening: When an asset is accumulated (bought), other market participants quickly notice and jump on the bandwagon, raising the demand and prices. Same on a sell-off. The crowd follows the leaders!

Take the following notes:

  • Prices are erratically distributed, not normal, and you better operate with a system that considers this in its algorithms.
  • Do not extrapolate past actions into the future. Instead, let your system conclude from the action of now, notifying you about underlying changes in supply and demand that might lead to directional solid price moves.

A natural model that follows the described would be the systemic reading: It predicts, based on specified pre-happenings, the potential and the expected magnitude of a price movement, comparable to predicting an earthquake based on seismic readings.

When overlaying the critical price action, of the center, on falling and rising prices with the normal price distribution model, we see that only about 68% of the price actions are coherent with the Bell Curve Model. When we now calculate our expected return, we come to the following conclusion:

  • Winning:      68% * $17.40 = $11.83
  • Losing:         32% * $84.90 = $27.13
  • Expected Income:                -$15.30   

An Investment of $82.60 leads to -18.5 % expected ROC per month longer-term.

Our calculating is underlining why 76% of the retail traders lose money. If you use the wrong model to forecast, you will lose money long-term, even if you have close to 70% winning trades by trying to gauge the price distribution of assets.

So, what to do now?

Instead of assuming that you know with a high likelihood where the price distribution to the up and downside will be boxed-in, use a system that tells you when predictable price moves most likely will happen.

To replicate the actual happening in the financial markets, we built a high probability model with an attainment rate at or above 65% that considers the actual radical or erratic price distribution.

NeverLossTrading Price Move Model

Theory: Key asset holders will have a solid need to re-balance their inventories. Thus, at a particular price expansion, they will either float- or shorten supply, which will result in an opposite directional price move that will then take away from our profits. Knowing this, we pre-calculate how far the expected price move will reach, and there we take profit,  assuming it will retrace or reverse after.

Hence, we let the market leaders appraise the asset price journey and latch on, entering and exiting positions faster than institutions.

Our brand name derives from the concept of repairing a trade instead of accepting a stop loss; however, Never Stop Loss Trading was a bit lengthy.

TradeColors.com is our introductory system to high probability trading. We always allow for upgrades; you only pay the difference if you start with TradeColors.com and upgrade after.

Many of our clients purchase more than one system: Our systems are productivity tools, and by combining them, you produce a higher participation rate and higher returns.

NLT Systems Compared on a Productivity Index

Please find here a PDF of our offering…click.

Our tool to calculate the expected price move is the SPU = Speed Unit, and it indicates how far a price move shall reach until it comes to an end. 

With our systems, you can operate with conditional buy-stop and sell-stop OCO orders (one-cancels-the-other). Without the need to be in front of your computer for the orders to execute. You enter by price thresholds, ensuring that other market participants have the same directional assumption as you do and exit at the SPU target or adjust the trade at the stop.

By a change in the frequency and amplitude of the price movement over time, we specify indications to act on high probability price turning points, applying mechanical rules rather than leaving room for interpretation.

Takeaways

  • Operate with a system that gives you a 65% or higher likelihood to forecast price movements at critical price turning points.
  • Let your system extrapolate the price movement for where to take profit.
  • Engage with a system-defined stop that is highly likely to bring the trade to target in the usual statistical price volatility.

Let us give some examples of how such a system can help you, using SPY, the ETF of the S&P 500 Index.

SPY Day Trading Chart

SPY Day Trading with the NeverLossTrading Timeless Model

The above chart contains multiple NLT Indicators that spell out price thresholds based on different assumptions:

  • Buy >, Sell <, Buy_SPU, Sell_SPU, Buy_T, Sell_T, at key price turning points
  • Buy_C >, Sell_C <, at trend continuation points

You initiate a trade when the price threshold is surpassed in the price movement of the next candle, allowing you to place buy-stop or sell-stop orders or longer-term conditional orders.

The dots on the chart spell out the target, which forecasts the exit point of the trade, in 1-5 candles, and we explain further in the following example.

To make your day trading actions less predictable for other market participants, we use the NLT Timeless concept to construct a pure price-based chart that keeps risk and reward in a proper relationship.

Our indicators definitively work on time-based charts for every asset, time, and tick situation: The NLT Timeless Concept is our most recent development for helping traders make sound trading decisions repetitively for day trades and longer-term investments.

SPY Daily Chart, December 20 to January 14, 2022

SPY Daily NeverLossTrading Chart

Chart Analysis

Situation-1: We have several trading opportunities in this situation:

  • Buy_T> 463.21 on 12/21/2021, which was confirmed on  December 22, and a long position to Target-1 was initiated.
  • At the end of December 22, another signal was added: Buy> 467.81 (Floating) and allowed the target to be moved to Target-2.
  • On December 27, Target-2 was reached, and the trade closed. By our rules, we do not initiate further transactions at the exit level without seeing a pullback and neglect additional signals printed.

Situation-2: Three NLT signals indicate a short trade potential at the end of the day, January 5, 2022:

  • In the price movement of January 6, 2022, the price threshold of $468.28 was surpassed, and a short position opened.
  • On January 6, a Floating signal was added. The price development of the day did not reach Target-1 and allowed to move the trade’s exit to Target-2. If you trade out of an IRA account, shorting the stock is not permitted, then we share methods of options trading that you can follow the downwards price movement of the share.

Situation-3:

  • The signal, Buy_T> 469.85, indicated a potential price turning point; however, the target was limited by an NLT Box Line, and we only trade those signals at breakouts of the box.
  • The signal, Buy > 473.20, was not confirmed by the price movement of the next day not reaching the buy-threshold.
  • The signal Sell < 463.44 led to a trade that remains open when writing this article, and even if it would be a losing trade, we would still stay in the expected 65% range of winning. Please also consider that the first two trades added a higher income by trading for Target-2. Adding all this up spells out a positive expectation of the model and indicator.

During writing this publication, the last trade on SPY was still open; the price development of January 18 quickly validated the set direction, and the market dropped and reached the set target. Please see the following chart, showing how quickly erratic price moves can go and with the suitable model on hand you can follow.

SPY Daily Chart, December 20 to January 18, 2022

NeverLossTrading Daily SPY Chart

Another sell signal was printed at the exit candle (Target-1); however, we do not enter at an exit candle but always find other opportunities to participate in a trade. You recognize, there are rules to learn, and we teach those one-on-one in our mentorships where we tailor our program to your wants and needs, covering multiple topics you need to master to trade the markets. We put them together in the following summary graphic:

Crucial Trading Success Factors

Crucial Success Factors in Trading

Conclusion:

  • Trade with a high probability system gives you mechanical rules for trade entry, exit, stop, or adjustment.
  • Have a business plan for trading that you stick to, containing an action plan (when and how to trade, when not) and a financial plan (assets, timeframes, return opportunities and the financial goal).
  • Analyze the situation well and take fewer and high quality/high probability trades only.

In our mentorships, we help you to have all this in place. Please take a look at the overview of what we want to share with you when you are working with us:

NeverLossTrading Mentorship Program Elements

NeverLossTrading Mentorship Elements

With the help of our systems, we help retail traders to decide at trade entry for the  five significant challenges they face to prevent the common mistakes often made:  

  • Trade entry decisions (when to trade)
  • Exit decisions (where to take profit)
  • Stops (where to place them)
  • Maximum time in a trade (specified by the signal)
  • Risk to reward (only trade at favorable setups)

Make a difference and come on board to high probability trading; we are happy to find out in a private session which of our systems and mentorship suit you best.

contact@NeverLossTrading.com  Subj.: Demo.

We are happy to hear back from you,

Thomas Barmann (inventor and founder of NeverLossTrading)

www.NeverLossTrading.com

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Entry filed under: Algorithmic TradingDay Tradinghigh probability tradingHigh Productivity TradingInstitutional Money Movesmaking money tradingnever loss tradingS&P 500S&P EminiStock MarketStock Market IndexStock TradingSwing TradingTechnical AnalysisTrading Successtrading system.

Day Trading Options

Thursday, January 13, 2022

Day Trading Options

Summary: Options trading offers a high leverage, limited risk strategy to participate in stock price moves. There are some rules to learn to successfully day trade Put and Call options, and we want to share a step-by-step approach to follow.

Options allow you to invest only a fraction of the underlying stock costs: In the concept we share, the investment volume for an options trade compared to 100 shares varies between 0.2% to 3% of the stock price.

Picking an example: Buying 100 SPY Shares requires a cash investment of $47,700. If you day trade from a margin account, your associated cash for the trade is about $12,000. Using our day trading options strategy, one risk unit to control 100 shares comes down to about $180, making day trading options very attractive; however, there are some rules to comply with.

Options Trading NeverLossTrading Style

FINRA and SEC regulate options trading, and you need to fulfill pattern day trading regulations (PDT):

  • You meet the minimum PDT criteria if you make more than three day trades in five business days.
  • As a PDT, your margin account needs to hold more than $25,000. If the total value of assets falls below that figure, you will not have any buying power.

What Constitutes A Day Trade?

  • A day trade is simply two transactions in the same instrument in the same trading day, such as buying and consequent selling of a stock. The two transactions must offset each other to meet the definition of a day trade for the PDT requirements. So, if you hold any position overnight, it is not a day trade.
  • If you do not reside in the U.S. or hold a U.S. brokerage account, you might get a break on this. For example, there are no pattern day rules for the UK and Canada, and we are unaware of those in other nations. These rules are set by the US FINRA and therefore apply only in the U.S.

Hint: Always check with your broker; they might even impose more stringent rules for PDT. Most brokers offer several different accounts, from cash accounts to margin accounts, and each account comes with its own rules and regulations you will need to follow.

When your day trading account holds less than $25,000, day trading Futures or FOREX is your choice, and we offer unique systems and mentorships to share how this is done best.

Now that we shared the rules and regulations that guide options day trading activities, let us focus on the how’s and why’s:

How to day trade options?

As an algorithmic trading house, we specify and follow mechanical rules of how to day trading options:

  • The price movement of the underlying stock specifies entry and exit. When trading options, never work with a stop on the option; only define the stop-exit by a price point of the underlying stock chart. Same on the exit at target.
  • After entering an options trade with a limit order, you define conditional OCO (one-cancels-the-other) orders based on the underlying stock’s price points, determining your exit. Our systems define the maximum price to pay.
  • The system and indication also define the maximum holding period as a number of bars/candles: you exit if the trade is neither at the targe nor stop level.
  • In the concept we share today, we are not trading time-based; decisions are only price-based, and the system defines the price movement you focus on.
  • We use simple day trading strategies: buying weekly options: Puts (expecting the share price to drop) and Calls (expecting the share price to rise) based on the NLT Timeless defined price-move-value at a system-defined delta.
  • We are not day trading for price movements of the underlying stock below $1.
  • We share which stocks best to trade with this concept based on daily volumes, open interest, bid/ask spread.

Now the big question:

Why consider day trading options?

There are several reasons:

  • When prices fall, the ability to borrow stocks from your broker for short-selling is often limited. The terms used are HTB (hard to borrow) and ETB (easy to borrow), and the status stock-by-stock fluctuates by broker and situation.
  • Stocks underlie the uptick rule, which is a trading restriction that states that short selling a stock is only allowed on an uptick: If prices radically fall, your short-selling order will not be filled.
  • You are not allowed to short stock in IRA or Cash Accounts, while you can trade their options by applying for option level-2 (just some paperwork).

Where is the advantage of day trading options?

Let us share what day trading with the NLT Timeless concept can give you:

  • Aiming for a ≥ 65% return at pre-specified price situations on flexible risk units at high probability trade setups.
  • Working with risk-limiting investments only.
  • You are investing a fraction of the stock price.
  • Uptick rules and HTB do not limit your trading.
  • Learnable rules are applicable for multiple stocks, and we share where to best act and how.

Let us explain by a chart:

SPY Day Trading Chart

SPY on the NLT Timeless Trading Chart

At the chart, our indicators spell out price thresholds: Buy >, Sell <, and you trade when those are surpassed in the price movement of the next candle. Dots define positive exit levels and red crossbars’ potential stops. So look at the chart and understand why we say: let the chart tell when to buy or sell!

In the above situation, trading SPY stock on four times margin would have given you a return per trade, shy of 2%, with the NLT Timeless Concept and day trading options ≥ 65%.

Why and how does this work?

There are multiple ways to decide on a trade. When using technical analysis, you have the following variables to determine a potential price move setup: Price change, volume change, Volatility change or a combination of those

The majority of trades are determined by a change of one of those variables over time: Moving averages would be a typical example for tracking and deciding based on an asset’s price movement over time. You most likely experienced that you predicted the future price move; however, on a counter-price-action, you got stopped, and you were out of a trade before it commenced in your predicted direction: Producing a loss instead of the desired win.

Like in a chess game: Acting with predictable moves is rarely a winning strategy.

If you use a dynamic, less predictable entry, exit, and stop definition, you certainly have the chance to increase your trading accuracy.

With NLT Timeless Trading, time is taken out of cohesion. This will make your decisions less predictable; however, the stronger argument of the idea is:

We are helping you to simplify your trading decisions by specifying conditions to execute bracket or OCO orders along with the price movement of underlying assets.

The system works for all asset classes: Stocks, Futures, and FOREX.

What we casually named variables are, in reality, results of an underlying change in supply and demand. In the base economic principle, price is a result of a change in supply and demand. Time is not considered a determining factor. The model assumes that markets regulate themselves instantaneously by economic principles.

Supply and Demand Correlations

Price results by a Change in Supply or Demand

The above graph gives a relation of the quantity offered and the resulting price. In the current situation, additional demand for a stock at $100 occurs. If no additional supply occurs, the equilibrium will move up to match supply and demand at $110.

The typical problem for a trader is: In hindsight, you know what happened, and we want to help you predict the future price happening with high predictability and frequently by our systems and concepts.

Money flow accepts price as the resulting variable of a change in supply and demand and specifies potential price move setups with clearly defined:

  • Entries (price threshold)
  • Exits (targets)
  • Stops (wrong assumption)

With our systems and strategies, we want to help you to higher accuracy:

  • Only accepting a trade when the direction is confirmed
  • Exiting at a pre-defined target, prevening for the price to pull back and taking your profits away before you realize them
  • Choosing an adequate stop, so you are not taken out of a trade by a too-tight stop and keeping reward and risk in a meaningful balance.

A Quick tip: buyers and sellers move the market; whoever has the upper hand moves the market in their direction.

This writeup focuses on day trading, and we refer to swing trading or longer-term investing in separate documentation.

By the NLT Timeless Concept, we simplify life for you and let the  chart tell when to buy or sell, specifying all decision making dimensions at once:

  • Entry Conditions: Execute buy-stop or sell-stop orders at pre-defined price thresholds at assumed probability, always knowing the maximum price to pay for an option and which strike to pick.
  • Exit Condition: When is the target reached
  • Stop Condition: When are you wrong and exit
  • Risk Management: Defined and concluded in the NLT Options Trading Strategy

When day trading for pre-defined price moves, positions are kept open for a couple of bars/candles but always close the same day.

Clients say this: “Now I feel comfortable, walking away from the trade without feeling the need to control it.”

Would it not also comfort your trading decisions?

Let us show you chart examples using a combination of NLT Indicators on the NLT Timeless chart.

TSLA, Day Trading on the NLT Timeless Chart

TSLA on the NLT Timeless Day Trading Chart

Chart Analysis

Again, the chart speaks for itself, and our system offered multiple intraday trades with an exceptionally high win rate.

  • Entry conditions: when the spelled out price threshold is surpassed in the price development of the next candle:
  • Stops at the red crossbars or five bars in the trade without reaching the target or end of the day.
  • Never enter a trade at the exit candle: stop or target.

When this caught your interest as a day trader, ask us for a live demonstration:

contact@NeverLossTrading.com  Subj.: Demo.

With the help of our systems, we help retail traders to decide at trade entry for the  five significant challenges they face to prevent the common mistakes often made:  

  • Trade entry decisions (when to trade)
  • Exit decisions (where to take profit)
  • Stops (where to place them)
  • Maximum time in a trade (specified by the signal)
  • Risk to reward (only trade at favorable setups)
The Basis of Trading Decisions by NeverLossTrading

NLT Timeless Day Trading is just one example of what you can learn in our mentorships.

We work one-on-one only and taught many traders to get independent in more than ten years in business.

Let us add another example of a widely traded and held stock: AAPL.

AAPL, Day Trading on the NLT Timeless Chart

AAPL on the NLT Timeless Day Trading Chart

Multiple indicators found a trade situation for going long at 11:15 a.m. EST. The red crossbar signified the stop, and it was not challenged until the trade came to target (gray dot on the chart) at about 3 p.m. EST. When trading the stock, you aimed for a 3% return on margin. By trading NLT-specified Call Options, you were striving for a 65% return on a minimum investment level of the price of one share. For more:

contact@NeverLossTrading.com  Subj.: Demo.

Subscribe to our free publications and webinars; sign up here.

We are happy to hear back from you,

Thomas Barmann (inventor and founder of NeverLossTrading)

www.NeverLossTrading.com

Disclaimer, Terms and ConditionsPrivacy | Customer Support