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Chris Vermeulen
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Chris Vermeulen the founder of AlgoTrades.net Algorithmic Trading Systems. This automated investing system is designed for individual investors and traders. He is also the editor of the TheGoldAndOilGuy newsletter which is designed for gold market traders providing quality ETF Trade Alerts,... More
My company:
AlgoTrades Algorithmic Trading Systems
My blog:
TheGoldAndOilGuy - Gold Market Traders
My book:
Technical Trading Mastery - 7 Steps To Win With Logic
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  • Algorithmic Trading System Has Signaled US Stock Market Has Reached A Critical Turning Point

    Algorithmic trading system has signaled that the US stock market has reached a critical turning point.

    The past two years we see the stock market steadily climb with low volatility. All investors and traders have had to do is simply buy the pullbacks within the stock market and riding the market to new highs. While this has worked out very well to date, most will in for a big surprise when the market trend reverses.

    algorithmic-trading-investing-sAs of today, the AlgoTrades algorithmic trading system which uses momentum, cycles, volume flows and advanced filters signaled that the market is now in a down trend.

    The algo trading system identifies intermediate trends within the market which his idea for swing traders, or active investors looking to get the most of out the market and their capital. These trends typically last 3-12 weeks in length, meaning the US stock market is in for a wild ride.

    The big question is if this is just another correction within the bull market, or the start of something much larger. What appears to be forming is a major topping phase (stage 3) in the Russell 2000 index. If this is the case we will see a spike in fear that sends to vix (fear index) also known as the volatility index sky rocketing into the 30s and possibly even 40s, similar to what we say in 2011.

    In 2011 the Russell 2000 index formed the same topping pattern we have today. This pattern led to a 30% drop in the index within a few weeks. Will it be the same or is this time the start of an actual bear market?

    With the stock market being so frothy and in rally mode for several years. We are due for a major bear market to cleanse the market of greed.

    The good thing is that the Russell 2000 is a leading index. Meaning it typically leads the US stock market, which is the SP500, & DOW. We need to watch carefully as the Russell 2000 tests this critical support level of the head and shoulders topping pattern it has formed. A breakdown will trigger mass panic and selling in the financial market.

    As of today the SP500 in the DOW still look to be in a strong uptrend at first glance. But the underlying technicals and market internals are telling us otherwise. The average investor is likely buying into this dip once again which they have done for the past couple years. And with the average investor accumulating more stocks at these lofty prices they will likely be the ones left holding the bag when the market crumbles.

    Since early April 2014 we have seen heavy distribution within the stock market, though most people don't realize the distribution is happening, a trained eye can spot when the big money is rotating out of certain high beta stocks, sectors, and indexes.

    In January this year we saw the bond market put in the bottom and form a basing pattern. Bonds broke out of this pattern in early May and have been slowly working their way higher since. It's just a matter of time before bonds jump in value, but it will not take place until the stock market starts a correction which looks to be only weeks away. Money will flow out of the stock market and looks for a safe haven, which bonds are the most popular and predictable.

    If we take a quick look at crude oil, it has been trading in a large consolidation pattern for the past two years. Price is nearing the apex of this pattern and a large breakout will happen in due time. With the economy slowly bouncing bottom I feel a breakdown in crude oil will be the likely outcome.

    Here is my detailed algorithmic trading system analysis on everything explained above:

    http://youtu.be/EQi2-wn380o

    Algorithmic Trading System

    Algorithmic Trading System Trend Conclusion:

    Short term traders should be looking to short any bounces in the market until our algorithmic trading system signals that a new uptrend has started. Learn more about how the trend and trades are identified in our last article called "Algorithmic Trading Beats Out Market Sentiment, The Silent Killer" - Click Here

    Technical analysis and trading is half art, half science. There are ways to fast track this process if you are a do-it-yourself type of trader. A great book that provides the process of learning and what to focus on can be found here: Click Here

    Finally, you can have the August issue of INNER-Investors Monthly Newsletter Free: Click Here

    Chris Vermeulen

    Founder of AlgoTrades Systems

    Aug 05 6:10 PM | Link | Comment!
  • Using The S&P 500 To Profit From The Passage Of Time

    Most traders follow the S&P 500 Index closely, but few equity or futures traders are able to structure trades that are profitable based solely on the passage of time. Option traders use a variety of trade structures, called credit spreads to actually make the passage of time a profitable endeavor. Unfortunately there is one catch . . . the price of the underlying asset has to cooperate.

    What many readers may find interesting is that I structure my option portfolio around being positive Theta. This essentially means that the portfolio collects option premium as time passes which will be converted into profits if prices cooperate. I attempt to consistently capture close to 1% of my account value per day in positive time decay.

    Inquiring minds might ask how I accomplish this task.
    The answer:
    multiple iron condor spreads. An iron condor spread is a credit spread where a trader takes a call credit spread and a put credit spread simultaneously. In many cases, the trader expects the underlying asset to consolidate or trade in a specific range.

    I have several high probability iron condor spreads in my portfolio all the time. I trade the same trade structure using the same underlying assets over and over again. In many cases, I will have more than one iron condor spread on the same underlying asset on my books at the same time. The underlying assets that I focus my iron condor strategy around are primarily index options and index etf's.

    I trade the S&P 500 cash index (SPX), the Russell 2000 cash index (RUT), the Nasdaq 100 ETF QQQ, and the Dow Jones Industrial Average ETF which is DIA. These are just a few of the underlying assets that I trade using the iron condor strategy. I traditionally enter the trades at about 50 days to expiration using a probability of success of around 80%. Most of the time, the broader index would have to move roughly 2 standard deviations from the current price at entry to create losses in my portfolio.

    Back in early July I entered an August SPX Iron Condor Spread which presently is boasting profits of around 10% on maximum potential risk. However, I wanted to show readers that recently I entered a September SPX Iron Condor Spread with about 50 days to expiration. The probability of success was around 80% for the trade to be profitable. The following chart of the S&P 500 demonstrates the price range where the new September SPX Iron Condor Spread will be profitable if held to expiration.

    (click to enlarge)

    As can be seen above, the new September SPX Iron Condor Spread is profitable as long as the SPX price stays between 1,785 - 2,050. The trade was entered on July 22nd in addition to the August SPX Iron Condor Spread that I was holding at the time. The chart below shows the price range in the S&P 500 Cash Index (SPX) which will be profitable if both SPX iron condor spreads are held to expiration.

    (click to enlarge)

    If both SPX spreads are held to expiration, the profitability range for both trades held simultaneously is 1,820 - 2,020. The probabilities are quite favorable that one if not both trades will be profitable at the August and September expirations.

    The combined strategy offers a probability of close to 80% to make a positive return. Based on maximum possible risk, the typical return is between 10% - 15% depending on implied volatility changes during the holding period of the trade. At first glance, many traders write this strategy off as a poor strategy based on risk / reward. However, what other strategy offers nearly a 10% - 15% return on maximum risk with a near 80% probability of success at the time of entry?

    When paired with other directional trades, having multiple, high-probability iron condor spreads on the books at the same time builds a high level of positive theta that helps support consistent portfolio profits. So far, the recently launched Technical Traders' option service is boasting two closed trades thus far. Both trades that have been closed were quite profitable.

    The first winning trade was in Facebook which was directional biased to the upside and a call diagonal spread was the trade structure chosen to use. The trade had a maximum risk of $493 per spread and produced a gross gain of $111, or 22.51% per spread. The other big winner was a FXE Put Butterfly Spread which was designed to profit partially from the passage of time and from lower FXE prices. The trade was entered with a maximum risk of $141 per spread and produced a gross gain of $53, or 37.59% per spread.

    Overall, the new option service is off to a great start and currently has several additional trades which are profitable at this time. For more information, click the following link to check out the new cheaper, upgraded options service at:www.TheTechnicalTraders.com/options/

    Chris Vermeulen

    Tags: SPY, SH, UPRO, SDS, index, options, theta
    Aug 04 9:47 AM | Link | Comment!
  • Algorithmic Trading With Market Sentiment

    Algorithmic trading which is also known as automated trading has changed the way I trade and invest dramatically. As you know trading is extremely difficult to be consistently profitable in. The #1 reason individuals fail is because they struggle with their emotions and end up trading with the general market sentiment. While the herd mentality/feeling can and most of the time feels like the proper (logical) way to look at the market, trading with the "herd mentality" is the silent killer.

    I am going to teach you how to read market sentiment so you can swing trade and profit consistently from emotional traders to earn 1% - 3% per month trading the SP500 index. If you want to make money, you need to trade against the herd (masses) at key support and resistance levels in the market. Plus you should have a robot (algorithmic trading system) execute these trades for you. Because, you need to completely remove your emotions from the game, and because it's not rocket science to identify key levels where you should be entering and exiting the market with your money.

    You start by looking at the market completely backwards. Focus on buying positions during heavy volume sell-offs (panic) and sell your positions during heavy volume rallies (greed). This was a very tough transition for me and I still get nervous and emotional during these times when my system enters and exits positions. This strategy feels completely wrong at the beginning but the profits speak for themselves!

    One Of My Algorithmic Trading Strategies

    This trading strategy is my favorite because I know the masses are panicking out of positions, sweating, and having heart burn, while my automated trading system is entering a high probability position against them. This analysis may seem basic at first glance, and that is because it is, but when you combine the analysis of each indicator explained below, you end up with a highly effective trading strategy. I took things on step further and converted into an automated trading strategy. This is one of nine automated trading strategies I use.

    SP500 - 5 Minute Chart - Algorithmic Trading Strategy #1

    This SP500 chart shows where a high probability short trade should be executed based on the algorithm tradingindicator. It is important to know that over the past 6 years the SP500 has provided a 1.25% profit on average each time one of these extreme sentiment readings occur on the charts. While that may not sound like much of a return, know this happens several times each month and better yet, if you trade the ES mini futures, you get a lot more leverage. ES trading turns a 1.25% index gain into roughly a 10% gain based on futures margin requirements for one contract.

    Anyways, the red indicator on the chart is a simple volume based indicator which measures fear and greed in the market. It is very accurate at picking market tops and bottoms. And I calculate it by taking the NYSE up volume and dividing it by the down volume. When you see this indicator start to rise it tells us the majority of traders (the herd) are buying (greedy) and we should start looking for a short entry.

    (click to enlarge)

    Let me show you how to find the trade using the market sentiment…

    The NYSE advance/ decline line Algorithm Trading Strategy #2

    How to use the NYSE advance decline indicator. It's simple really, when there are 1500+ stocks trading up on the day then the market is getting overbought. Meaning too many stocks have moved up in a short period of time and traders will most likely start taking profits. When the other two indicators talked about in this article are confirming a short sell signal the odds highly favor a selloff in the stock market that should last 1-3 days.

    (click to enlarge)

    Last algorithmic trading strategy #3 is the put/call ratio

    The put call trading algorithm can be a little tougher to use at times because when the market is trending down the ratio tends to fluctuate near the top. It stays near the bottom of the chart when the market is trending up but it is just the extreme spikes we are looking for.

    When the broad market bounces and we see the put/call ratio drop into the lower band it's telling me the majority of traders have finally become bullish. This tends to happen once a previous high is broken as it triggers short covering and breakout traders start to buy within a false rally during a down trending market.

    (click to enlarge)

    Algorithmic Trading Strategies Conclusion:

    If all you do is use these three indicators, focus on the 5 or 10 minute charts, trade only with trend of the daily charts 20 day moving average, and take partial profits at 1%, again at 2%, while keeping a small position open as a trend trade, you will become a more consistent trader and be able to profit from a falling stock market.

    My proven algorithmic trading strategy running live but this is in a rising market… $3200 in profits made quickly, with low stress and 100% hands-free, what else can you ask for…?

    algorithmic-trading-4

    It is critical that once you take partial profits at a 1% gain, you start moving your protective stop into the money to lock in a profit for the balance of the position. All three indicators need to reach the extreme levels at the same time for a trade to be triggered. Know that I have seen the market continue a trend during extremely oversold market conditions which lasted for months at times. Do not try to bet against the market just because you think its oversold and should not be shorted, just ride the trend for all its worth. Eventually your last trade will lose as the trend reverses, but wait for it, and expect to lose a trade from time to time,

    Final thoughts, this strategy works just as well during a bull market. There are some minor changes required on each of the indicators which I will cover in another automated trading strategy article soon, so stay tuned for more logical trading tips.

    Have My Bull & Bear Market Strategies Automatically Traded For You: www.AlgoTrades.net

    Chris Vermeulen

    Tags: SPY, DIA, IWM, QQQ
    Jul 23 6:23 PM | Link | Comment!
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