Quick Brief
Well that was a BBIG way to start the week / end the month!
Today I’m going to share a purely theoretical trading strategy I’ve been investigating to sharpen my tool kit and honestly just learn. The following is for entertainment purposes only and has not been verified to work, nor rigorously tested and most certainly isn’t (you guessed it) financial advice.
The “OTO Hexamine” (cute name I know) is a theoretical One-Triggers-the-Others (OTO) trading strategy which daisy chains 6 Buy STOP orders together in a manner which theoretically creates well… a landmine.
Anatomy of the Hexamine
I’m sure that there are plenty of permutations of this order flow that can be utilized mixing market, limit, etc. orders, however, for the sake of simplicity and learning this example simply uses the Buy Stop order (note this is different than a limit buy).
The first thing to note in this diagram is the Primary Order (center of the daisy) which is a Buy Stop set to execute when the price reaches $3.280 (not a cent lower). Once the initial Buy Stop is “tripped”, the rest of the orders are all placed and are independent of each other.
Again for sake of simplicity let’s pretend we are in a perfect world where everything occurs in a deterministic manner, then, theoretically, the following could occur:
- Primary order is tripped executing last trade at a price of $3.280 (even)
- Secondary orders all simultaneously fragment like shrapnel independently
Let’s say that the buying pressure from an extraneous source was sufficient: each petal of the daisy would execute in ascending order starting at $3.290 and ending at $3.340. In real life there is no guarantee this sequence would occur, but this just results in petals that later could be cancelled & reloaded; however, each “detonation” of a petal would set a new floor price on the dot.
Importance of the Buy Stop
The strategies described above use the buy stop to protect against bullish movement in a security. Another, lesser-known, strategy uses the buy stop to profit from anticipated upward movement in share price. Technical analysts often refer to levels of resistance and support for a stock. The price may go up and down, but it is bracketed at the high end by resistance and by support on the low end. These can also be referred to as a price ceiling and a price floor. Some investors, however, anticipate that a stock that does eventually climb above the line of resistance, in what is known as a breakout, will continue to climb. A buy stop order can be very useful to profit from this phenomenon. The investor will open a buy stop order just above the line of resistance to capture the profits available once a breakout has occurred. A stop loss order can protect against subsequent decline in share price.
Source: investopedia
While a Market Buy placed when a security is at $3.270 may only execute at $3.275, a Stop Buy placed at $3.280 will only (from my understanding) execute at that price or above.
Summary
This is all purely theoretical and mainly just a thought experiment, however, the enemy is no weaker than they were yesterday and no number of rocket emojis will change that. Odds are heavily stacked against us, but I like it that way. Exploration of new and intriguing trading strategies in my opinion is not only a great way to learn more about the underpinnings of market mechanics; but could also prove essential in this fight.
I seriously doubt shorts decided not to short after GME / AMC, they just got smarter, I think our tool kit should as well.
Originally posted on Reddit.
