Eliminating Confusion with Pattern Trading

Dear Reader,

A technical glitch with the New York Stock Exchange’s opening auction yesterday caused more than 80 stocks to halt trading right out of the gate.

Traders everywhere were confused about their orders and the apparent market mayhem.

The New York Stock Exchange is the only major U.S. exchange that still uses a trading floor along with electronic trading, and technical errors like yesterday can quickly create anxiety and erode market confidence.

It may be the talk of the town, but the confusion, anxiety and lack of confidence is just another example of why it’s important to me to follow a systematic, rules-based trading approach.

No matter what the headlines say, my readers can trade patterns with confidence by simply following rules – it’s how money is made.

I know it’s easy to be confused and sometimes misled in trading, so let’s talk about how you can avoid confusion, and more importantly how rules-based trading can clear up muddied water and allow you to reap financial benefits.

Self-Interpreting Market Can Lead to Confusion and Losses

In 2018, the NYSE was fined $14 million due to a four-hour trading halt that occurred in 2015, resulting from a flawed software rollout.

Yesterday, the exchange automatically cancelled orders on the open even though some of them should have been filled, causing chaos for market participants.

Over 80 stocks ended up halting trading due to confusion, and will likely cost hundreds of thousands of dollars to remedy.

I even noticed confusion and concern about it with my own readers based on their comments with each other during our live discussion yesterday.

Computer glitches can cause confusion, and luckily, they’re infrequent events, but there are other things beside exchange glitches that can cause confusion, misrepresentation and trading losses.

Let’s look at a put/call ratio as an example of something that can be misleading, and you’ll get a better idea of what I mean.

In the image above you can see the time of day and the total number of calls and puts traded along with the ratio of puts to calls.

A put/call ratio less than 1 indicates there were more put options traded than calls, and a ratio above 1 indicates more call volume than puts.

Some traders will use the ratio and falsely assume a market direction or create a bias based on the ratio. So, one might assume a bearish market bias if there are more put contracts traded than call contracts.

Here’s the reality, however. What the ratio doesn’t make clear is that for every put or call buyer, there is a seller on the other side of the trade.

Buying a call creates a natural bullish bias because the security must rise for the option to profit. However, when the call is bought, another trader is selling it, and the selling call options is a bearish trade.

So, when a call option is traded it has both a buyer and a seller. This means that one trader expects a rise in value, while the other trader expects a decline in value – creating conflicting biases on the same option contract.

Placing trades based on misguided assumptions can cost you money. Now you can understand why it’s so important to me to follow a systematic approach to profiting.

Trading Different Strategies with a Systematic Approach

As you know, I have a variety of trading strategies for generating profits.

I focus on five areas that allows trading opportunities nearly every week of the year:

  • Trends
  • Statistical Probability
  • Seasonality’s
  • Volatility
  • Contrarian

And here’s the thing – every area of focus has a systematic approach for profiting. The software my team put together searches for repeatable patterns for all of my strategies.

Then, once my software identifies a tradable pattern, I then take the next step by determining its reliability – which means going back in time to test the pattern for reliability and consistency.

You see, following the data is how successful trades are created and profits are made.

It’s not guesswork and hope, but rather consistency.

I’m transparent enough to say that no trading mechanism will produce successful trades 100% of the time, but by trusting the data and trading favorable odds, success is proven over time.

Be sure to join my live discussion today at noon. My plan is to reveal a signal that boasts a 73%-win rate over 15 years on 26 trades.

I’ll see you there,

Tom Gentile
America’s #1 Pattern Trader

Learn About Trading with the Money Morning Live Professionals!

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