Jae

Quan
Rust
Kane

LUX ALGO STRAT

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Quan
Rust
Kane

Introduction:

We are stock options day trader that trade NAKED OPTIONS (puts or calls). We have been
testing Lux Algo and specifically this strategy since April 2022. Our main stock ticker will be QQQ. The
strat technically works with any ticker but because other tickers are very volatile (SPX, TSLA, AMZN)
you will get fake out (stop out) more often than not. The CORE (main setup) for the strat has been
working 90%+ of the time with profit ranges from 5%-700% to this day. There has been only a handful of
time where the strat has fail so do your diligence and manage and minimizing your losses as best as
possible when that happen. We use Webull and TOS (think or swim) CASH ACCOUNT to day trade
options.

Some tips and advice before we get started. First and foremost, please BACK TEST and LIVE
TEST this strat for at least 2-3 weeks to see many different scenarios that will play out and make notes
AND reflect your plan on how to trade on those days. Because option trading is leveraged, we highly
recommend putting in as minimal amount of money as possible and solely focus on growing that portfolio
(port). This strat is insanely consistent and it will be very good in growing port in the long run.

Focus on managing position while trading and let algo do the TA. We are big advocate of
management not TA as we believe that it should be the very first thing new traders learn instead of TA.
The goal of management is to PROTECT MONEY. Green/Breakeven is your best friend and
MINIMIZE RED. Be STRICT with your plan and stop losses but NOT TIGHT.

Strict = cut immediately and move on, NO BAGHOLD

Tight = profit up 20% and stop loss at 10%, that is too tight and gives no wiggle room

Final note: BE PATIENT, some days as you will see during your 2-3 weeks of live testing will be
difficult and will make you wait 5-6 hours for a trade. Some days there will be no play at all and best not to
trade and enjoy your day.

If you can wait 2-3 weeks or a month for a paycheck, you can definitely wait a few hours for a SAFE
confirmation plays instead of FORCING a random trade.

Make trading simple and as least of importance as possible in your life

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Kane

Do not be addicted to trading this can lead to greed (revenge trading and over trading etc etc)

https://nesslabs.com/too-busy-to-enjoy-life

Some management and psychology videos (HIGHLY HIGHLY RECOMMEND):

https://www.youtube.com/watch?v=gIXPs339Mnk&t=617s&ab_channel=LiveTraders

https://www.youtube.com/watch?v=qVjaBzDINGk&t=102s&ab_channel=VolatilityTrading
(watch all 4 parts)

https://www.youtube.com/watch?v=peft40rt2GU&t=18s&ab_channel=TraderTv

Chart setups

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Kane

1 QQQ chart in 5 min time frame using Heiken Ashi candle type running 10 sensitivity and 21 agilities.

Must have EXTENDED HOURS ON and REQUIRE subscribing to trading view Real Time Data for

NASDAQ and NYSE STOCK

Link for How to Get Real Time Data: https://youtu.be/_p2pPYT9ODY

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Note: we do not TAKE ANY SETUP OR SIGNAL given in PRE-MARKET. We have extended hours

on so that Lux Algo can gather more data to do TA for us.

Sensitivity Settings

Lux algo setting

Some management tips:

Because the sensitivity and agilities is pretty low for lux algo, setups on the chart will be used as entry be
treated as scalp (anything lower than 10% profit on your POSITION) at first. Once you’re in roughly 5-
10% profit, you have several ways to manage your position and I’ll be listing 3 main ways. First, you can
exit your entire position and grab that 5-10% profit and be done for the day. In my experiences, this will
happen more often than having those 300% bangers days. Secondly, you can greed and leave BREAK
EVEN MENTAL stop loss and let your entire position run and you can get lucky and catch those 700%
days. However, in my experiences, those big % profit days WILL NOT happen often and you’ll end up
break even days after days. Lastly, you can trim half of the position at 5-10% and leave the other half run
but you MUST have break even mental stop loss. DO NOT GREED and ALWAYS have your stoploss.

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Quan
Rust
Kane

CORE (main setup)

tracer, catcher, and BIG candle (500k+ volume) all same color = 100% confidence

TRACER and CATCHER MUST BE moving up/down (not just small slope up/down) AFTER candle
close. Small slope up/down would suggest low volume and it isn’t good enough to enter the trade.

EXAMPLE:

In this example, you can see that the BLUE circles would highlight the small slope down of tracer and
catcher which indicates small volume. Few candles after that, you can see the wicks against your position
(puts in this case) that would probably stop you out due to your proper management of having a mental
stoploss. The best setups would be highlight in GREEN circles where T/C would clearly be sloping down
for this example.

Note: Please wait for NEAR candle close (30 seconds before the candle close on the setup) to have
confirmation on the setup. DO NOT rush to enter early or you will get FAKEOUT.

IMPORTANT Note #1: Setup at Market OPEN is very very sketchy and I highly recommend to not
trade the first 30 minutes after Market OPEN.

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EX 1: In this example we can see the strong signal shown, the tracer and catcher are moving downward,

so entering the trade once this candle closes is the safest entry. Once in the trade, it’s recommended to take
profit as soon as you feel comfortable. A general place to take profit is when the tracer and the catcher get
flat again, as indicated by the yellow arrow. That would be a good exit point, or anywhere between the
green and yellow arrows shown in the picture above. For small account it’s recommended to take profit
any time after 5% gains.

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Kane

In the next example, we can see a 100% setup but with no written signal. The 100% signal is confirmed by
all 3 components same color Big green candle and tracer and catcher moving in a direction and not flat.
This is an indirect setup and should be enter lightly (small light position) as advised above.

As you can see, at market open the tracer and catcher started to move up, a good place to enter trade in
this case is at the green arrow. A good exit would be the first red candle when the catcher actually turned
red and also go flat. If you have multiple contracts, you could sell one at the first red arrow, and hold
another one and sell at the second red arrow, your stop loss on the cons that are being held should be
moved into profit, that way if the trade reverses you still are protected from that other contract turning
RED and losing all profit.

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June 28

In this example, you can see that it is completely flat the entire day and THE BEST recommendation is to
not trade on those days at all. Just go enjoy your day

Frequent Q/A

1. What is your strike for QQQ?

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For 1 day till expiration (DTE), 1-2 strike out the money (OTM)

For 0 DTE, 1 strike in the money (ITM)

Example:

QQQ = 283.63

0 DTE = ITM Calls = 283; Put = 284

1 DTE = 1-2 OTM Calls = 284 – 285; Put = 281-282

2. What is your stop loss (SL)?

Everyone has different port size and risk tolerance so find what is best for your own preference

Quan’s stoploss:

First when entering position = -15% to max of -20%

After the position is in profit = Break even stop loss

Recommendation: strict 20% (SL) for beginners will always be good

2. HOW THE FUCK DO I GET PERFECT ENTRY?

You can’t realistically get PERFECT entry every time consistently. Your stop loss plays 2 roles in your
position. One, it is there to protect you when the strat actually reverses 180 degrees on you. Two, it is there
to give WIGGLE room because of the fact that you simply cannot have PERFECT entry every time
consistently.

I have two recommendations for entry. Firstly, a good entry would be at around 30 seconds AFTER
candle close. Momentum tends to retrace a little bit before continuing the momentum.

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Example (on 10/7/2022 at 12:25 pm EST candle):

First candle of the setup:

Candle closed price: 270.35, Low price = 270.22

Second candle of the setup = entry based on my recommendation

Open candle: 270.65, High price = 270.65 (momentum

tend to retrace back a bit before continuation)

If u waited 30 seconds AFTER candle close on the SETUP confirmation candle, you would get a great
entry and in this case it’s 30 cents differences on QQQ price = could be equivalent to around 10% profit on
your put contracts.

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Secondly, what I personally use, I read the price action of the candle using HIGH and LOW to determine
my entry. Using the last example, the first candle SETUP candle had HIGH and LOW of 270.95 and
270.22 respectively. Because for this example I want to be buying PUT contracts, I would NEVER enter at
the LOW of the SETUP candle 270.22. I would enter at somewhere close to the HIGH of the SETUP
candle BUT not the exact HIGH of the setup candle because that entry is already long gone. I rather not to
be greedy and enter at somewhere close to the HIGH of setup candle than be greedy and wait to enter at
the exact HIGH of the setup candle which will most likely never happen and I would miss my chance to
trade and make profit.

3. Why do we have to avoid flats?

We avoid flat because in options trading there is THETA DECAY which means if the stock price is
ranging and not moving enough our Puts/Calls will keep losing value the longer we hold them.

4. Why not use Lux s/r or other Lux price target prediction tool to squeeze profit or set SL?

As mentioned earlier, we focus on learning and developing good management skills because they are most
consistent in the long run. Those price predictions can be correct one day and can also fail the next day =
not as consistent. Therefore, we do not believe in letting an algorithm telling us when to take profit or
where should the stop loss be. Have a mindset that YOU cannot always snipe the MAXIMUM profit, and
so ALWAYS be happy when you either BREAK EVEN or GREEN.

5. Can I play during big events? (FOMC meeting)

Don’t even bother playing it lol. It is extremely volatile on those days, too much of a gamble, too much risk
on those days. EVEN on a perfect textbook setup IT WILL reverses on you.

IMPORTANT Notes #2: IF you really want to trade, I highly recommend playing BEFORE FOMC and
not playing DURING or AFTER FOMC meeting.

Also, IV will pump and be very high on that day, your 0dte 1 strike OTM contracts will be at 3.00 ($300)
instead of the usual 1.50 ($150) price range. This means that once the event is over, your contract IF not
ATM or ITM will be completely crushed and you will be caught during the IV crush.

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Kane

Darth Maul candle (your stop loss orders won’t even fill due to the high
volatility and your position will be fucked)

6. How do I get my orders filled FAST ?

My recommendation is to use LIMIT ORDERS and BUY the ASK when you want to enter ASAP and
LIMIT ORDERS and SELL the BID when you want to exit ASAP. The spread on QQQ is very very
small ($2-5 per contract) so don’t be greedy for that extra $2-5 but your orders wont get fill quick enough.

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tos option chain example

IMPORTANT Notes #3: Based off of my experiences in trading, there are days to be look out for. Firstly,
TUESDAYS will often have movement early in the day and WILL likely be extremely flat MID DAY.
Secondly, DAYS right AFTER HUGE MOVES IN THE MARKET ($7-13 MOVES for QQQ), on those
days it will highly likely to be very very flat so do not expect much action on this day (this is the
consolidation period after such a big move) .

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