Wouldn’t it be great if you could automatically check a position’s probability of success before sending an order to your broker? Now you can!
First, you’ll want to add an open position action to the automation so the bot knows what position to reference when evaluating market data.
You can always test the automation with live market data to see if the bot would open a position based on the automation’s current decisions.
Checking probabilities (if you even remember!) is time-consuming. Now you offload that process onto your bots, and they’re intelligent enough to factor in break-even prices and external factors such as volatility. Plus, bots can process multiple decisions in the blink of an eye, faster than any human.
In this video, I'm going to show you how to automatically check probability levels before opening new positions. This is a great decision recipe and an important filter that you could use inside of your automations that give the bot the ability to check probability levels before submitting the order to open a position.
So, let's assume in this demo scanner automation that you have your symbol loop in place. You're going to be looping through a mini watch list or ticker symbol list of potential trading symbols. Now you want to open a new position.
The first way to do this, and this is the way I always do it here, is to first add your open position action. You want to tell the bot exactly what position you ultimately want to get into. And you want to give the bot all of the criteria for expiration, and strikes, and leg selection right here in this open position action.
So, we're going to set this up first by connecting our symbol to the symbol loop. Using this custom input, it allows us to check each position independently or each symbol independently for all the criteria that we're looking for.
Next, we can set our expiration, and our leg strikes. Here, we'll just keep it as 30 days or closest to 30 days expiration. We'll keep our short put strike at a 30 delta, but we'll change up our long put leg to be just $1 underneath of our short put leg. So, in this case, we're going to do $1 below our short put leg.
As we just change this variable field here and notice, we can also specify if we want it to be closest, higher, exactly, or lower than the original strike that we're keying this off of. In this case, we want it to be exactly $1 below. So if it's not exactly $1 below because we want a $1 widespread, then go ahead and not enter the position. Once we're good to go here, we can simply hit save.
Now that we have our new open position action created, we can save this to our automation editor. Now the reason we do this, first the reason I'd like to do this first is because it gives the bot all of the available information for what position we eventually want to get into.
Now what I'd like to do is I'd like to precede this decision with some additional filters. This is where we can check the probability level of this upcoming potential trade. Now here we're going to add a new decision and then go ahead and go down to the opportunity section of our decisions.
This opportunity section tells us that we can check potential trading opportunities for many different market criteria or different data points like rate of return, the bid ask spread, and a number of other things. One of the things that we can check in here is the chance of profit. We can actually select the opportunity and then check and see if the probability of a profit on the trade is greater than some amount that we set.
Now here, we can just select the recent opportunity that we created. And because we created that open position action first, the bots are smart enough to recognize that you are trying to potentially get into this position. So, you can create a new one or just use that recent one that we've already created.
This is our symbol that we connected. 30 days to expiration, the short strike at a 30 delta, and the long put $1 below the short put leg exactly. Once we're good to go with this potential trading opportunity, we just go ahead and save. So now the bots are going to pull in the information for that potential trading opportunity.
Again, completely automated in a fraction of a second when the automation runs. And it's going to check the chance of profit on that trade, taking into account the delta and the credit that you might take in, and the expiration, and all of those things. And check to see if the potential chance or probability of profit on the trade is more than, in this case, we'll just use some round number like 70%.
So if the probability or the chance of profit on the trade is more than 70%, then we want the bot to go ahead and try to open the position. So, in this case, we can simply save and add this to the yes path.
So think about this for a second as we're walking through this. The bot is going to run our scanner automation, it's going to loop through each of these symbols that we've put in our symbol loop.
For each of those symbols, it's going to check and see if it has a 30 day to expiration, 30 delta, $1 below long put leg with a chance of profit more than 70%. And if it does have a chance of profit more than 70%, then go ahead and open the position. Submit the order to the broker and try to get into the position.
Now, this is super cool because, again, you can take all of this manual, tedious processing that you might usually do inside of your trading platform and let the bots do this for you. And in many cases, many people are not even checking this anyway, so it's going to be doing something that you weren't checking for and using automation as a tool to help you find better trades.
We can even test this right here inside of the automation. We can run a test inside our demo bot and go ahead and see if any of the symbols that we're looping through would've met this criteria. So the first one that we're looping through here is SPY.
Notice that the chance of profit on that position is not above 70%. How cool is this? It's actually checking to see if that SPY position that expires on February 4th, with these exact strikes, which is exactly what we told it to do, has a chance of profit more than 70%.
Right now, the chance of profit on that particular short put spread is just 66.53%. So the bot would not continue down the next path to open the position. And it would continue to check this position using the scanner automation over and over again through the trading days and weeks until it has a 70% chance of profit. And only when that's true would it continue down the yes path.
Notice we can check the other ones like FXI and GLD. Inside of GLD, you'll notice that it did go ahead and clear the yes decision here. We can get some more information here, and you can see that the short put spread in GLD that expires on February 4th, the $166 and the $165, again, exactly $1 difference, which is what we told it to check has a chance of profit that's 73.8%.
In this case, it would've allowed the bot to continue down that path and open the position. We can check that final one here with EFA, and you'll notice that in this case, it didn't continue down the yes path.
Now, this is great because this tells us that the bot would do exactly what we want it to do: check a list of symbols inside of our symbol loop here, and only enter new short put spread positions for ones that had a probability of profit over 70%.
This allows us to do all of the offloading to the bot and let the bot make perfect decisions for us as it runs through its automation. So if we turn on this automation, then this is what we would expect the bot to do.
Again, this is just a test of how the decision would perform if you turn it on. But you can test this logic right here inside of your bots before turning on your automations.
This is a really cool, again, example of how you can automatically check probabilities before submitting new orders to your broker. This ensures that you're only making high probability trades if that is part of your trading strategy. And it ensures that the bot doesn't send any orders if the probability of profit is less than your threshold you set.