Your guide to 100K Challenge scenarios
- Periods of more frequent signals than average
When signals occur more rapidly than the algorithm can handle, we use the sorting method detailed on the Challenge sheet. This allows for the Challenge to trade the highest probability signals and most option trade worthy signals while allowing some signals to simply not be traded.
- Periods of less frequent signals than average
When signals come in at a slow pace due to market and stock conditions, we simply pump the brakes and wait. When signals begin to emerge again, we jump back in and trade them. We do not and will not trade for the sake of trading. We trade the signals as the algorithm dictates and occasionally that means we hold cash.
- Challenge winning streaks
Winning streaks are fun for sure but are often met with a lot of challenges for many traders. We do not allow the trading streak of the Challenge to affect the trades and how they are run. When winning streaks happen, trade allocations increase for the subsequent trades as the overall account value is higher.
- Challenge losing streaks
No trading losing streak feels good nor was the Challenge algorithm designed to avoid losing streaks. The Challenge algorithm was designed to survive losing streaks without destroying a Challenge’s potential to realize nice gains on winning streaks. Regardless of the trading streak that the Challenge is on, all trades are handled the same way with the algorithm and streak is simply not taken into account.
- Trade triggers with unusually high option values
Unusually high option values tend to occur when the market is highly volatile or when a company is about to release their earnings report. For the most part, the option value is not taken into account unless the implied volatility part of the option exceeds more than 20% risk. At that point, Jeff is able to step in and choose the appropriate risk/reward parameter for the trade and the right time to trade the signal.
- Stocks reporting earnings
When the Challenge gains are under $10,000 we do not hold trades over earnings. When Challenge gains exceed $10,000 we are willing to take the earnings risk if the algorithm signal shows that the odds are in our favor.
- Stocks declaring dividends
For the most part, dividends are already priced into options. Many theories and studies talk about how stocks trade after their ex-dividend date but the Challenge algorithm does not take a dividend into account. Stop and profit targets are adjusted after the ex-dividend date to give a more accurate reflection of where the stock targets should be based on the trade signal.
- Stocks that hit our profit or stop targets outside of video time
While Jeff will occasionally step in and adjust a trade outside of the normal video times, it is very rare that he does. Trading is about creating freedom, both financial freedom and time freedom. The targets give a level where a trade is to be adjusted when those targets are breached at the normal video times. Occasionally, both stop and profit targets are hit and then reversed several times outside of the 10:30 and 2:30 EST video times and no trade actions are taken.
- Periods of high market-moving news
News? Who cares! There is always news! There is always something to worry about or new data coming to light. That is what makes a market tick! The algorithm is based on price action and price action probabilities, simply that. Analysts, reporters, Fed members, and politicians can ultimately move a stock but we let the price action dictate all trade actions.
- Half days in the market
Half days in the market have 2 video trade sessions but the times are adjusted. The video times on half days are 10:30 & 12:00 EST.
- Closed market days
Closed market days are handled the same was as a Saturday or Sunday. No actions can be taken so time stops are only based on days where the market is open.
- Options expiration
The 3rd Friday of each month can see some unusual trading action around options expiration. That said, the algorithm does not care for the reasons that the price action exists. It only cares that the action exists and analyzes the probability of future price changes. For the Challenge algorithm, options expiration days are just like any other.
- Major market gaps
Occasionally, the market has periods where there are explosive moves at the open. Gaps where the market opens 2-3% higher or lower than where it closed the prior day. These periods are fun when the market gaps the way of the trades but can be gut wrenching when it doesn’t. That said, the Challenge algorithm does not adjust based on gaps or expectations of gaps as they are random and very unpredictable… for the most part.
- Changing market conditions
Market conditions constantly change. Periods of chop are followed by periods of trend. Periods of larger moves are followed by extended periods of smaller moves. Change is a constant in the market and the Challenge algorithm is designed to adapt to that change. The Challenge execution is not altered based on market conditions.
- Changing Challenge values
Challenge trade sizes rise and fall based on the overall Challenge value. For the most part each Challenge trade will average around 30% of the overall Challenge value. When the Challenge reaches a value of $10,000, the original $3,000 is removed and not traded. When the Challenge reaches a value of $40,000, $10,000 of the gains are removed and not traded. Each person trading along with the Challenge keeps all of the gains in their account and are free to do with them as they please at anytime. Jeff, the Challenge trader, simply shows what he does in his account.
- Changing option values around trade entries and trade exits
For the most part, option values are relatively stable when we make our trade entries and exits. That said, this is a real world, changing market and until they invent a market pause button, we are always going to be subject to changing prices. After years of running challenges we have seen that these price changes balance out for those following along. Sometimes community members will get better prices than we do and sometimes slightly worse prices. We show what prices we are entering and exiting at and do so with real money in real time. It is up to each individual trader to decide if that trade and the current trade pricing is acceptable to them.