The Major Flow algorithm uses option order flow to predict movement in the underlying share price of the said ticker.
How does a Major signal trigger?
A major flow signal triggers when a large order is placed with a value larger than one million dollars. Major includes Levels 3-5 orders, Market orders, and Leap orders.
What are each type of Major orders?
Level 3 orders value between the range of one million and 2 million dollars. These orders can be picked up as legs to spreads, hedges, naked bets long and short, or even married to another long or short position.
Level 4 orders value between the range of two million dollars and 5 million dollars. These orders can be picked up as legs to spreads, hedges, naked bets long and short, or even married to another long or short position.
Level 5 orders value at five million dollars or more. These orders can be picked up as legs to spreads, hedges, naked bets long or short, married to another long or short position, but more often than not are large positions accumulated over time being closed.
Each level as you progress higher becomes more and more rare and important to note. The reason being is that each level not only picks up large valued orders but has to meet strict criteria that increase as the level does to be alerted to eliminate as much useless noise as possible.
Market Orders are large orders valued at a million dollars or more for the major ETFs such as SPY, and QQQ. You can use Market orders to understand the general sentiment of the market directions. Most market orders are hedges to protect long or short positions; though the orders that are OTM and not on a monthly expiration(especially short term) are the ones to take note of as they are unusually aggressive.
Leap Orders are large orders valued at million dollars or more with 300 or more days to expire. Typically leap orders start to flow in before major catalysts occur but more importantly when a major top or bottom has been found indicating a trend reversal is near.
When does a Major flow signal trigger?
Major flow triggers during market hours when a large option order has been placed and processed by another trader or institution.
How many times does a major signal trigger in a day?
Major orders can trigger once or a hundred times a single day. There are phases when market conditions are not in favor of trading options and subsequently signals will not be generated. There are phases when the market conditions are extremely favorable for trading options and thus we will see more orders being placed.
How do I trade a major signal?
All major signals are different from one another. Some orders may see returns the same day it’s processed or it may take up until expiration. The purpose of the major algorithm is to detect orders that are placed with the intent of price action to follow as option flow can foreshadow a move up or down in the underlying price.
We have found that these signaled moves happen immediately and even the following day.
When trading an unusual signal we suggest never using 10% or more of your portfolio. We also always recommend you then use a fraction of that 10% on your initial investment to allow room to average down if necessary.
Outliers do occur when signals are generated on an option contract that may be significantly far out of the money or even tied to spreads, iron condors, and even married puts. Though these are worth noting we do not recommend playing the exact same contract as the other trader but better yet taking a much safer contract that has time on its side and is ITM which actually holds intrinsic value.
Since these are merely signals happening in the market in real-time we suggest doing your own due diligence before taking these trade ideas as these signals are picking up human and AI orders that both can be wrong at times.
When is a major signal considered a failure?
There are a multitude of ways to consider when a major signal is a failure, though since the goal is to make 10-20% per signal the plan should be to lose no more than 10% on any given trade either. Ultimately your stop-loss comes down to your technical levels and personal risk levels as well.
It is worth noting that we’ve seen these signals wait until the last couple of days until expiration to reach the profit-taking goals.
We are always working to improve our signals even if they are great; market conditions are constantly changing on a weekly basis. Though every ticker with options can be registered it does not mean they are the best trade to take at that moment for a multitude of reasons i.g. Going against market conditions and sentiment.