Since its Inception, July 9, the Trader's Edge portfolio is Up 42.1% while the S&P is up only 1.0% as of the end of August.
We examine the performance of Trader's Edge since launch. Subscribe today to receive all of our trade alerts
For over 2.5 years, we have been providing thousands of subscribers with daily Buy and Sell signals on a host of securities which can be used to rebalance portfolios, raise cash, or add new securities to the portfolio.
On July 9, 2024, we launched Trader’s Edge, a new supplement to our Substack post attempting to identify possible short-term trading ideas based on the DynaLogic Zone and Relative Strength Indicator (RSI) data. Observing that markets go through cycles and individual securities become overbought and oversold, we believed we could provide data that could benefit those seeking to implement short term Put and Call option trades to turn market volatility into gains.
We examined over 100,000 lines of price data and identified successful trading patterns that unfolded over multiple days allowing for inter-day trading as opposed to high frequency intra-day trading.
In order to bring validity to the data, we opened a Schwab trading account to trade options with no margin and deposited $1000. We only deposited $1000 for two reasons: (1) we wanted to appeal to smaller investors, and (2) we knew there would be some options we couldn’t buy because the price of the option was too high.
We would only trade those options which we identified in Trader’s Edge.
The strategy was to trade long only Puts and Calls with no margin and a rules-based limit to our losses. Over the course of 6 weeks, we exercised 25 trades: 9 Puts and 16 Calls. Of the 25 trades, 21 or 84% spanned multiple days. There were 16 positive trades and 9 losing trades for a winning average of 64%. The average daily amount invested was $225.61, and the maximum invested was $727.64. As of 8/30/24, the Trader’s Edge portfolio was up 42.1%. Over the same time period, the S&P 500 was up 1.0%.
All of the transactions were called out in Trader’s Edge as possible trades.
The strategy was simple:
Identify those securities that met the criteria uncovered in our examination of the historical data.
Establish a maximum loss on each trade (around 20-40%)
Only trade long only Puts and Calls with no margin.
In executing the trades, we first examined the overall market conditions. For instance, if the Relative Strength of the S&P 500 (SPY) was near or in an oversold position (below 30), there was a strong likelihood the market was or would soon be in an uptrend and Calls on individual securities that were oversold, had a strong probability of catching that uptrend. We identified those securities that had a low DynaLogic Zone number (1 or 2) and a low RSI reading as probable candidates for a possible trade. Conversely, if the Relative Strength of the S&P 500 (SPY) was near or at an overbought position (above 70), there was a strong likelihood the market was or would soon be in a downtrend and Puts on individual securities that were overbought, had a strong probability of catching that downtrend. We identified those securities that had a high DynaLogic Zone number (3 or 4) and a high RSI reading as probable candidates for a possible trade. Additionally, there were certain situations that matched a unique pattern we observed in examining the data that produced a successful outcome the majority of the time.
We also recognized that the trend of markets and securities can continue in an overbought or oversold position or reverse direction which could lead to our exiting our trade before reaching our 40% upside or 40% loss limit.
In a number of instances, we would put on a partial trade and add to the position if we continued to like the market environment. In some instances, if we had on multiple Puts or Calls on a security, and we had a winning trade on, we might sell part of the position and carry a runner seeking an even higher return.
We usually let the markets open at 9:30 AM ET and didn’t look to execute any trades until around 10:00 AM ET. On several occasions, we missed trades that were identified in Trader’s Edge that went on to do quite well, but also got better execution on a number of trades by waiting.
We used Limit orders on all of our trades.
For those new to option trading, buying Put and Call options probably implies a high degree of risk because owning out-of-the-money options can expire worthless. For the educated, trading options with loss limits imposed, offers the opportunity to take advantage of market volatility, both on the upside and the downside.
The key to trading options is to recognize that despite your best efforts, you will have losing trades. Establish hard and fast rules regarding losses.
If trading options is new, start small. Most of the trades we highlight only require $50-$150 to invest. If your loss is set at 40% that’s $20 to $60 loss on a trade.
If trading options is new to you, look around on the internet and try to increase your knowledge and understanding of options.
We are doing the heavy lifting by identifying particular trades to execute. By embracing a thoughtful process, we believe you will have a tool in your toolbox that will help you capture market volatility and enhance the overall return of your portfolio.
Options offer you the opportunity to increase your portfolio value whether the markets are going up or going down. It’s like having the best of both worlds. Subscribe now to receive all of our recommended options trades with Trader’s Edge!