How To Beat The Algos At Their Own Game

by | Apr 19, 2020 | blog, Editorial | 0 comments

It’s a war out there, traders.

Each day it’s a battle as we gear up and prepare for the onslaught at the market bell.

It takes the unsuspecting trader by surprise, causing them to get stuck in a market whip-saw that was brought on by the algos.

But it doesn’t have to be that way!

Did you know that all you need to do is add a “human touch” to your strategy and then you’ll outsmart any computer on the other side of the trade.

After all – a piece of software doesn’t know how to understand news headlines and earnings…

And this is why I created the trading system I have today… to get an edge over the computers and market makers.

Now let me show you how you can use these slick tricks to put you ahead of the algos!

 

Daily Deposits


Daily Deposits is based around determining the strength of the markets using a blend of premarket momentum analysis.

Why premarket momentum?

By starting before the market opens it allows me to get ahead of the algos that turn on at 9:30am!


Pre market Analysis

Let’s break down how I use the pre market analysis every morning to make my trading decisions.

Why do I do this?

I make sure that I scan all of the markets for you!

I monitor everything coming across the markets so you don’t have to. I take in the good news and the bad, and make sense of what I am seeing from my years of experience.

I do this to make sure that I don’t go into the trading day and miss news. Missing news or economic data is one of the quickest ways for new traders to lose money!

So, where do I start?

I review the global markets from the top to bottom! I start with what’s happening in the Asian markets, European markets and then the U.S. premarkets on the e-mini futures.

It’s important that I do this to understand what traders are doing in those markets… any fear or uncertainty will cause a huge impact to the US markets if there is anything major happening…

This is what alerted me to the severity of the Coronoavirus coming out of China in February (and yes, I bought puts that day at the open!)

Let’s break down what happens every hour before the market opens for you to understand how my flow works.  


Hourly Breakdown

7:00 am:

I scan every market from:

  • Foreign Exchange
  • Economic Data
  • Commonities
  • Asian markets


Then I continue to watch the markets for volume, earnings, fed announcements, and any signals coming from the central banks with monetary policy changes.

These are all critical pieces of information the markets will signal to you in the pre market session that will cause the price of the stocks to dive at the open.


9:05 am:

Once all of the premarket review is done, let’s take a look at what you will receive from me.

I send a Trade of the Day alert signaling the direction I believe the markets are going to head in at the open.

What do you get with this signal?

The Trade of the Day includes:

  • The option contract (put or call) to trade
  • The specific week or month
  • The specific strike price
  • The entry price of the trade
  • The stop loss of the trade
  • The profit targets of the trade.  


There’s no place else you can find this
kind of transparency in a system, where I break down exactly where I am planning on getting in and out!

Why do I start looking for trades at 9:05am instead of waiting for 9:30am?

I do this to get ahead of the markets and try to anticipate where the price will move in order to stay ahead of what is happening.


Later in the day:

We make profits and cash in on the Daily Deposits and put it in the bank!

But wait… there’s more! Once you cash in – don’t be so quick to leave the trading desk.

I continue to sit there and monitor the markets even though I am already out of my Trade of the Day!

Every now and then, a second trade opportunity will set up and I want to make sure that I am around to take the trade when it occurs!


Fundamentals Help Determine The Direction


It might seem odd that a day trader would care about the macro market signals around him…

But in fact, fundamental information could be one of the best analytic tools any trader can leverage when it comes to understanding the core of the markets.

Remember this is about finding information that the algorithms can’t see!

Let’s take a look at what I use to get ahead of the markets every day.


3 Key Fundamentals To Watch:
  1. Macro Indicators 
    • Currencies – Equities have an inverse relationship to the Japanese Yen
    • Bonds – Equities have an inverse relationship to bonds
  2. Market Sentiment 
    • US futures markets
    • Overseas futures markets
    • Commodities – Oil, gold, copper, etc
  3. Momentum Indicators + Overall Trend
    • 10 and 20 SMA
    • TTM Squeeze
    • 5 min, 10m, 15m charts


So how does this break down?

If we see a sentiment at the open that is extremely strong, it’s saying that the buyers are in control and the markets should continue their upwards trend. The inverse occurs for weak markets as well.

Now let’s put this all together and review a trade that Daily Deposits alerted to earlier in the week.


Daily Deposits – A Sample Trade

Let’s break down how I use the pre market analysis every morning to make my trading decisions.

I review the global markets from the top to bottom!  I start with what’s happening in the Asian markets, European markets and then the U.S. premarkets on the e-mini futures.

It’s important that I do this to understand what traders are doing in those markets… any fear or uncertainty will cause a huge impact to the US markets if there is anything major happening… 


Global Outlook

First, I start with reviewing the global outlook to determine the trend coming into the US market open.

The importance of reviewing global markets is that there is a high chance the trends that are going on around the world will bleed over into the US markets.

Source: CNBC

 

Prior to the opening bell on 4/14, the Asian markets were up overnight – signaling strength that should carry over into the US markets throughout the trading day.

After reviewing the global markets, the next focus is to analyze how this strength is going to impact the US markets.


US Premarkets Analysis

When analyzing the premarket session there are two primary things you want to reference when determining the trend of the markets.

The pre market trend signals are:

  1. The overall trend is positive throughout the post market and pre market trading session
  2. Support was held twice, signaling buyers are maintaining control of the stock as it’s driven higher
  3. The 10 MA is over the 20 MA, signaling short term momentum going the open
  4. The TTM Squeeze broke out of a recent squeeze with increasing momentum


Here’s the chart showing a visual explanation of the points above:


Source: Thinkorswim

The strength of a trend is measured by the amount of supporting factors that contribute to the upward price movement.

In this case, there are many supporting indicators that are pointing to an impressively strong market heading into the open.

So when this occurs – chances are the market is going to gap and go! This means you will not get a chance to enter your trade later in the day and might have to enter the markets right at the opening bell!

Let’s break down the Trade of the Day next…


Trade of the Day

After careful analysis of the pre market momentum indicators I determine that I want to trade the markets to the long side. At this point I am aggressive with my trade and expecting a gap and go setup to play out.

Here’s the alert that the Daily Deposit momembers received in the pre market trading session.  

Talk about a solid trade!

With this trade I was able to pull down a huge win of almost 75% profits from those options!

Now – let’s take a look at a chart of the value of the calls to see how they exploded to the upside when the markets opened!

Source: Thinkorswim

As you can see the trade left us almost no time to enter…right at 9:30 the stock rallied and closed well past our target price!

I was able to enter the trade at $0.95 and ended up exiting the trade at $1.65 for a massive 75% ROI on the trade.


Wrapping Up

Remember, a single indicator cannot predict the markets… but a well thought out strategy can put the odds in your favor to win more than you lose!

And once you combine multiple indicators, market sentiment and other fundamental factors you have stacked the odds in your favor to beat the algos!

This is just a single example of the power of Daily Deposits and the analysis that goes into each and every trade.

There are more technical analysis tools that are used for trading different market conditions. Don’t trade the markets blindly, but instead learn exactly how I break down the markets to beat the algos.

These are the 3 key important parts of Daily Deposit:

  1. Macro Indicators -Currencies and Bonds 
  2. Market Sentiment – US futures markets, overseas futures,commodities,oil, gold, copper, etc
  3. Momentum Indicators + Overall Trend – 10 and 20 SMA, TTM Squeeze, 5 min, 10m, 15m charts

 

Click here to join Daily Deposits

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