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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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  • Keeping It Simple, Why Short Traders Are Losing Money This Week

    One thing I have talked about several times which cannot be understated is that is the tendency for investors to believe that complex trading ideas and automated trading systems are better than simple, logical ones.

    At first thought this notion is completely understandable. After all, if an idea is fairly simple, how could it possibly be "a secret" and investors not using it yet?

    Successful trading and investing is not about how good you look or how impressive you sound in videos. It's about what, when and how you do it. It does not matter if you are placing the trades yourself or using an automated trading system. What, when and how the investment is traded is all that matters.

    It's known that highly intelligent people struggle with the markets because they believe intelligence will improve their trading results. The reality is, they do not thing simple trade setups and strategies that look like they will make easy money, will work. Why? Because they think that the market is complex and thus trades should not be simple to spot and time, therefore the simple ideas should not work.

    In all fairness "simple trading" is not really that simple. Successful trading requires the right kind of simplicity, in the right amount at just the right time. This is what creates the highly profitable investors and automated trading systems.

    Why The Short Traders Are Losing Money This Week:
    They are fighting a bull market which is still pointing to higher prices.

    Take a look at the chart below of the SP500 futures index. You will notice the bars are color coded; this is done by my automated trading system which identifies the market trend which trades should be trading in line with.

    The stock market remains in a full blown bull market. Investors should remain long for time being. On ther other hand active investors should be trading with the current market trend which is shown on the chart.

    Market corrections within a bull market are sharp and short lived. As an active investor you will be luckly to catch one or two short trades during these pullbacks before the uptrend is retaken.

    It is imporatnt to know that eventually one of these bull market corrections will be the staw that breaks the camels back, and kick starts a new bear market. This his why I always move to cash and look to short each of these corrections. We just never know WHEN a full blown bear market will start. If you are holding your positions through these corrections and think you're a great investor, just wait until the market does acutally breakdown and most of your gains are gone before you realize it. I will admit, its very easy to get lazy with investments after years of rising prices. Lazyness and a the lack of a trading strategy for a falling market is what causes 99% of investors to lose their money.

    I believe in trading defensively. Sure it's more work, takes time to follow, and there are extra trading commission fees, but its a small price to pay to keep the majority of your gains.

    (click to enlarge)

    SP500 Monthly Big Picture Analysis

    Here is the big picture and trend of the SP500 index. Simple fact is, eventually things are going to get really ugly. By stepping back and looking at this chart, it's clear the market must still fall substantially in value to break below its critical support trend line and before we can confirm a true bear market is in place.

    Do you want to see your nest egg drop 20-30% before you decide to exit? Or do you want to profit from this initial correction when it does happen, and make even more money when the stock market drops for a year or two after taking your account to new all-time highs.

    (click to enlarge)

    Keep It Simple Conclusion: Automated Trading Systems?

    The good news is that if you keep things simple by following the intermediate trend, like the color coded chart above, you can keep making money as the market rises to ridiculous new highs, and avoid market corrections, and possibly even profit from them.

    In my next article I will show you a simple trading strategy that I have used for many years to time stock market bottoms and tops for swing trading. Best part is that the data I use is available online for free.

    One final note, there are automated trading systems that does all this for you. I also use it and have it trade my own investment capital for me. You can learn more about it and join my mailing list here:http://www.algotrades.net/automated-trading-system-2/

    Chris Vermeulen

    Aug 18 12:40 PM | Link | Comment!
  • 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!
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