ORB Bot Update: Stop Loss Fixes + Your Questions Answered

Key Concepts

• Opening Range Breakout (ORB): A trading strategy that involves identifying a price range during the initial period of a trading session and then trading based on breakouts from that range.
• Zero Days to Expiration (0DTE): Options contracts that expire on the same day they are traded.
• Credit Spread: An options strategy where a trader sells an option and buys another option of the same type (call or put) with a different strike price, resulting in a net credit received.
• Stop Loss: An order placed with a broker to buy or sell a security when it reaches a certain price, intended to limit an investor's loss on a security.
• Automation: The use of technology to execute trading strategies without manual intervention.
• Backtesting: The process of applying a trading strategy to historical data to assess its potential profitability and performance.
• Positive Expectancy: A trading strategy that, over a large number of trades, is expected to yield a profit.
• Time in Trade: The duration a trade remains open.
• Risk-Reward Ratio: The ratio of potential profit to potential loss in a trade.
• Buying Power: The amount of capital available to a trader to open new positions.

Live Trading Performance and Adjustments

The video details the performance of an automated trading bot connected to a live real money account, following up on previous profitable trades. The winning streak has continued, with only one losing trade out of the trades taken since the last update.

Key Observations and Adjustments:

• Winning Streak: Most trades have been profitable.
• September 15th Trade (Loss): This was the only losing trade. The trader intentionally let the stop loss be pressure tested, even though they anticipated a loss. The stop loss execution was not ideal, filling at a higher percentage than intended (around 180% of the credit instead of the set 130%). This led to a review of stop-loss trigger settings.
• Exit Order Fill Issues:
  • On one Wednesday, a 5-cent closing order took over an hour to fill, with numerous order cancellations during that time.
  • Adjustment: The minimum entry price was changed from 5 cents to 60 cents to ensure a 10-cent closing order, which is believed to be easier to fill.
  • Later, a 10-cent closing order also took hours to fill.
  • Adjustment: The minimum entry credit was further increased to 70 cents, aiming for a 20-cent closing order, which is expected to fill much faster.
• Manual Intervention vs. Bot Entry:
  • The trader manually added contracts on some days, aiming for better entry prices.
  • Impact: While this didn't change the outcome between winning and losing trades, it significantly reduced the "time in trade." For example, a trade that the bot was in for nearly 3 hours was exited by the trader in 41 minutes, and another where the bot was in for 1 hour and 22 minutes was exited by the trader in 9 minutes.
  • The trader acknowledges they don't currently have a way to automate this manual entry adjustment and plans to cover it in a future video.
• Stop Loss Trigger: The stop-loss trigger mechanism was adjusted after the September 15th trade. The trader is unsure how the new settings will execute and plans to provide an update in the next video.
• Premium Availability: On one day, there wasn't enough premium in the strikes outside the opening range. The trader manually traded two contracts with a strike inside the opening range. They plan to create a separate bot to handle such scenarios, as many potential trades were skipped due to insufficient premium.
• Overall Encouragement: Despite the need for adjustments, the trader is highly encouraged by the results and the bot's performance.

Frequently Asked Questions (FAQs)

1. Why 10-wide for the bot instead of 15-wide (Jack's backtest) or 5-wide (your usual ORB)?

• Trader's Usual Strategy: The trader typically uses a 5-wide ORB strategy.
• Reason for 10-wide: The choice of 10-wide over Jack's 15-wide was based on risk-reward efficiency.
  • Max Loss Calculation: Width of spread * 100 - Credit Received.
  • 15-wide: Max loss of $1,500.
  • 10-wide: Max loss of $1,000.
  • Credit Received: The credit received on a 15-wide spread is often not sufficient to justify the additional $500 of risk compared to a 10-wide spread.
• Examples:
  • A 15-wide spread entered for a credit of $35 on September 16th (risking $1,400 for $35) was deemed an unfavorable trade.
  • A 10-wide spread entered for a credit of $60 on September 18th was considered a better risk-reward proposition, where the extra $10 credit was not worth the extra $500 margin and risk.
• Conclusion: The width (10 vs. 15) is not the deciding factor between winning and losing trades but impacts capital efficiency and buying power.

2. Can you share the backtest associated with this bot?

• No Backtesting Performed: The trader has not run any backtests for this specific bot.
• Reasoning: Similar to their views on paper trading, the trader finds backtesting can be misleading, especially for 0DTE SPX trades in the first 90 minutes.
  • Market Volatility: The high volume, order flow, and volatility in this specific market segment can lead to discrepancies between backtested data and live trading.
  • Electronic Execution Concerns: The trader has experienced issues with electronic execution, such as crazy wicks and wide bid-ask spreads, which they believe backtesting might not accurately capture. They previously avoided hard stop orders for similar reasons.
• Focus on Live Performance: The trader prioritizes making consistent profits ($150 repeatedly) and maintaining positive expectancy through live trading and adjustments rather than relying on backtests.

3. Will you share the bot in the Option Alpha community soon?

• Intention to Share: Yes, the bot template will be made available for cloning on Option Alpha.
• Current Status: Not ready yet.
• Reasoning:
  • The bot has only been connected to the live account for less than a month.
  • It has only experienced two losses, which is not enough data to fully validate the stop-loss settings.
  • The trader is still actively refining both entry and exit settings.
  • They want to avoid releasing multiple versions of the template frequently.
• Release Timeline: The trader estimates it will be ready in "a couple more weeks."
• Process: The bot's process involves live market sessions, observing its reaction, and then adjusting settings accordingly. The trader believes it's impossible to anticipate every scenario and that live market feedback is crucial.

Synthesis and Conclusion

The trader is sharing their ongoing journey of automating their trading strategy, specifically focusing on 0DTE SPX trades using an Opening Range Breakout (ORB) strategy with a 10-wide credit spread. The bot has demonstrated a strong winning streak in its initial live trading period, but the trader is actively refining its settings based on real-time market execution. Key areas of adjustment include optimizing exit order fill times by increasing minimum entry credits and re-evaluating stop-loss trigger mechanisms.

The trader emphasizes that the choice of spread width (10-wide) is driven by risk-reward efficiency rather than absolute profit potential. They also express skepticism towards backtesting for this specific trading style due to market volatility and electronic execution uncertainties, preferring to rely on live trading data for adjustments. While eager to share the bot template, the trader is committed to ensuring it is as refined as possible before release, aiming for a stable and effective tool for the Option Alpha community. The overarching philosophy is that consistency and incremental wisdom ("a little bit wiser than the other guys on average for a long time") are more crucial for long-term success than sheer brilliance, advocating for a steady, disciplined approach to trading.