ALGO TRADING (Maya) UPDATES

I know everybody is excited about Maya and want to get access to it as soon as possible. I developed the trading algo to trade my own real accounts as I eventually want to get away from discretionary trading myself. But I will remind you of my favorite quote from Warren Buffet himself.

“You can’t produce a baby in 1 month by getting nine women pregnant”

-Warren Buffet

We’re currently in beta testing with a select group of members. As any good software engineer knows, testing code in a live environment often reveals unexpected issues. Now, add the complexity of options trading to the mix, and you’ll understand exactly what I mean. 

Wait! you are having issues? I thought Maya was perfect.

I want to keep our group excited about Maya while sharing all the details I can, to keep things as transparent as possible. The “issues” if you want to call them that, are listed below. But as any seasoned engineer or trader will tell you, this is how things work in real life.

• THE BIG PROBLEM : Backtesting comes with some assumptions. One such assumption is ‘perfect fills’. When the algo determines it is time to take a trade, backtesting assumes that the trade gets opened immediately. In real life, you submitting an order doesn’t mean that the exchange will fill the order. What we are experiencing in our pilot group so far is that the ETFs that Maya trades, “SPY”, “QQQ”, “XLK”, “DIA”, “IVV”, “XLY” are all exhibiting a weird behavior where an ATM (at-the-money) $1 wide debit spread is not trading for .50c. In fact, to get a $1 wide spread for .50c, you have to go 4-5 strikes OTM (so if SPY is trading at $600, we are being forced to buy a 604-605 call spread if we want that .50c limit price). We do trade all these ETFs in our group all the time, and I don’t recall seeing this behavior at all. Please comment below if you have seen this before. This is a big hurdle for us, and I hope it is a temporary phenomenon which I can only attribute to high IV or IV skew.
• PAPER FILLS: The algorithm is live on both a paper trading account with $25,000 and a real-money account with $5,000 of my own funds. While Interactive Brokers, the platform I’m using for the algo, is excellent, there can be discrepancies between trade fills on a paper account versus a live account. Currently, trade alerts are generated from the paper account. I’m intentionally keeping my live account small for now. I’m sure you can understand why I wouldn’t commit everything to an algo that performs well in backtesting but still needs to prove itself in live trading. The paper trading account has $25,000, and my goal is for Maya to grow my live account to match that amount—something the backtests suggest is achievable (see backtests here: [link]). Once the live account reaches $25,000, I’ll connect trade alerts directly to it. Doing this earlier would limit the algo greatly as it will keep running out of funds, reducing the number of trade alerts the group sees.
• CLOSING ORDERS: We haven’t gotten to this point yet but this will be part of beta testing too. The algo will send closing trade alerts when a trade reaches its profit target, or needs management (like PNR, 50% loss rule and closing trades on Wednesday of expiration week). However, it is very difficult to calculate the current price of an options spread accurately. There is literally no brokerage out there that can give you the exact value of a spread and that is why stop loss orders don’t work for spreads either. Since we have 10 trades open, we will have to monitor if those closing alerts are sent at the right time. This is a process which will need to happen after a full trading cycle which lasts 30 days on average.

I NEED YOUR HELP!

It shouldn’t be hard to guess where I am heading with algo trading. My long term goal is for the algo to take over my own trading accounts and for my subscribers to be able to hook the algo into your brokerage and let it trade for you. There are legal implications involved here and I have no desire to start a hedge fund as the stress of managing other people’s money is not what I want to do. The closest legal option in the USA is called “autotrading” or “copy trading”. We are starting slow and steady with discord alerts but will get to the end goal soon. Which brings me to why I need your help. I have researched a lot of platforms which are suitable for algo trading, but non of them suit my needs:

– COPY TRADING PLATFORMS : There are over 20 platforms out there like eToro, Duplitrade, Avatrade etc which allow you to follow a trader so that your account mimics all their trades automatically while being legally compliant with the SEC. But none of them offers options trading or options spread trading.

1) The only platform I have found so far is called global-autotrading.com which claims to allow options autotrading. But it will cost an arm and a leg for our members as they charge a hefty monthly fee.

2) Signalstack is another promising option but they don’t support options spreads.

If you know of any such platforms, please email nishant@tradingextremes.com as it will help me with my research.

Macro Events – Employment data galore!

Next week is full of employment data. And as you know ADP and NFP reports are major market moving events. I highly recommend that you skip trading on Monday and Tuesday and concentrate all your trades between Wed and Friday. 

You may also remember that SAHM’s rule got triggered a few months ago and it points to an upcoming recession literally by December/January timeframe. SAHM’s rule has the reputation of never being wrong but Claudia Sahm herself said in her last interview that ‘this time might be different’ as she pointed to a soft landing scenario. 

Well, this week should give us a very clear employment picture and confirm if she is indeed wrong. 

DIA – Very bullish

No indicators so far are pointing to even a pullback (forget about a correction). Every indicator that I use is pointing to an end of the year rally. The only thing that can throw a wrench into this plan is some kind of macro economic data which surprises us. This could very well be ADP or NFP reports next week. But outside of that, we are going up.

SPY – Going up and still not overbought.

DOW Jones has led the charge in the recent rally but it is heading into overbought territory. SPY (and QQQ) on the other hand are not overbought and are beginning to go up. If tech/growth sector starts to pick up here, we have plenty of room to go up in the entire month of December.

EARNINGS: Almost over

Earnings season never really gets over but all major market moving stocks have already reported earnings. CRM could move Nasdaq and LULU/ULTA will have some effect on Dow Jones. But outside of that, it is just another humdrum earnings week.

Trading plan for next week