2021 has been a year with hardly any profits for short term traders. It even appears from Sentimentrader research that the vast majority of trading systems have been losing money, consistently, in 2021. Moreover, markets currently are increasingly dominated by bots and algos, so anyone’s biggest opponent in markets are computers. Markets become faster, more complex and in times like in 2021 they also may be lacking trends. Our continuous research finally triggered a breakthrough, a solution that is solving this problem of lack of profits for once and forever. Below article is a snapshot from our weekend update sent to premium members of our Trade Alerts service: a short term trading service that continuously improves until 1% results bring us to the 1% of market participants that run away with 99% of profits, as per Tsaklanos his 1/99 Investing Principles.
It has taken more than a decade of deep research, countless hours of testing an endless number of formulas, sleepless nights. But we have achieved a breakthrough in our research.
What are ‘micro-opportunities’?
We call it micro-opportunities. These are 72h windows in which there is a very high probability of a certain market trend to materialize.
“So what”, is what one might answer. How much profits can you lock in within 3 trading days, even if you trade a leveraged ETF like SPXL/SPXS?
Up to 90% per trade is the answer.
But not in ETFs, but in SPY options.
Did we say options? Wait a second, options are derivatives and we always claimed that serious traders/investors should stay away from them.
That’s absolutely what we said in the past, and we never had the intention to trade options. But a coincidence brought us there.
In February our team was running into the problem: a ‘soft trend’. This is a very slowly rising market (S&P 500) which constantly stopped out our position. We ended up accumulating a series of tiny losses, but it was frustrating because in the end the market was slowly creeping higher.
Out of our research came a refined trading approach with 2 different types of short term trades: very short term (quick trade) and simply short term (slow trade). We continued our research on both trade types. And out of this research came true game changers:
- Slow trade: by researching refinements and optimization we developed the specifics of the auto-trading algorithm.
- Quick trade: we went very deep to figure the quickest possible trades (excluding intra-day trading), and we hit the 48 to 72h type of trades. We call these micro-opportunities, and were able to find very reliable patterns based on a set of variables. We continued on this path, and without really expecting this we were able to find a winning strategy with SPY options. Moreover, we were also able to execute these trades in a fully automated way.
That’s how we turned a problem into an opportunity.
The clue of the micro-opportunities story as it relates to SPY options is this:
- Finding the right combination of expiration date and strike price (hint: it’s counter-intuitive of what you would think).
- Holding these options for max 72 hours.
- Closing them very fast in the unlikely event of a failed trade (here as well we found a consistent pattern and indicator which points to an invalidation scenario).
The result? A change of + 1.3% in SPY can result in +90% trades in specific SPY options within 72 hours.
Auto-trading + micro-opportunities: a killer combination
Why do we believe this is a breakthrough? Because we believe this is how 1% of the most successful market participants create a fortune in financial markets. These micro-opportunities are hard to spot, and they only occur once (max twice) per month. They have a high probability of success, but the window of opportunity ends quickly. All you need is a strategy that gives you maximum profits in this very short time window. This allows you to crack the code of trading financial markets. We believe we have cracked the code. We believe this is one of the best kept secrets of financial markets.
No complexity in options strategies, no butterflies, no straddles, no strangles, no married puts. Just directional options for max 72 hours, that’s it.
The problems we solve for market participants that want to follow this strategy:
- Investors/traders mostly cannot stand a position that goes in red. They hate it. With this options strategy based on micro-opportunities the vast majority of trades results in double digit profits, only a few result in losses. Profits strongly outperform losses. Because of this traders will not look for more than one day into a losing position.
- The returns are phenomenal: +90% profits for winning trades (minus the losses of a small number of losing trades) gives you crypto-alike returns on a recurring basis. Remember, crypto is only occasionally highly profitable contrary to what most think (only once or twice per year, for some 3 weeks only, that’s a lot of waiting for juicy returns).
- We were able to automate the execution. Fully automated options trading is what we developed.
- Spotting micro-opportunities are invisible for the vast majority of market participants.
- Most of the time our capital is in cash which helps to minimize the risk of being exposed to the market.
Options come with risk, and the biggest risk is GREED. Once this strategy starts delivering big profits humans will react based on their emotional instincts: “I should have traded with more capital”.
Once greed takes over in options trading it can be GAME OVER very quickly.
So the answer to this risk is to only trade with 50% of the available capital. Not all gains should be traded, on the contrary. Sticking to a disciplined methodology as it relates to the capital that goes into each trade vs. the capital that is set aside in cash is by far the biggest risk to factor in.
Micro-opportunities in action
We tested our options strategy to market price action over the last 6 months: we spotted 5 opportunities with +80% returns (4 of them +90%). A few trades were closed with a loss between 10 and 20%. This gives an average profit of some 70% per month based on SPY data since February of 2021.
We did plot the trades on the 6 month SPY chart:
- The winning trades are shown in the larger green boxes. The % profit is indicated below each box.
- The losing trades are shown in the small green boxes.
If we want to zoom in particularly into the last 2 trades we need the 15′ SPY chart. The next chart shows the +90% trade in green and the +70% trade in grey.
These trades originate from a real-time algorithm. Try to imagine that the following chart is cut out right after the first candle of each of the2 boxes: would you be able to spot a micro-opportunity? Probably not, but our algorithm seems to be a ‘signal machine’.
Visibly, our trading service is about to evolve into two distinct game-changing auto-trading services:
- Larger amount trades with SPXL/SPXS auto-trading. We keep these trades open between 3 days and 3 weeks. So far, profits averaged 9 to 10% per month over the last 18 months.
- Smaller amount trades with SPY options auto-trading. These trades last 48 to 72 hours. Returns averaged +70% per month since February. It is an absolute MUST to manage greed by trading max 50% of available capital.
Passive income on steroids is what we are about to offer to our premium members. And our VIP members will be the ones that will benefit most from this. That’s because they will get access (until Dec 31st, 2021) to SPXL/SPXS auto-trading, and presumably we will only offer SPY options auto-trading to VIP members. Our regular Trade Alerts members will probably transition into the SPXL/SPXS auto-trading service. It is not likely that we will open up the auto-trading options service to a wider audience, presumably it will only be accessible to VIP members, is what our current thinking says.