High Probability Trading with the Delphian Studies
A bottom in a stock is when it has hit the low price of its current downtrend and is in the beginning stages of a reversal higher. Delphian finds bottoming stocks that have met our aggressive bottom target (State 8, Target 3) and have crossed below the lower Keltner Channel. Backtesting revealed this signal is triggered near the bottom and the stock will begin the trend higher in the near future.
State 8 in State Modeling™ is the most bearish state and typically has large downward moves over an extended period of time. Once the State Modeling State 8, target 3 has been hit, the stock has hit Delphian’s most aggressive target price. The target 3 price is a potential support area with a possible reversal ahead. After State 8, a symbol will normally transition into a bullish state. Using a secondary confirmation can assist in solidifying a potential price support and reversal. When the stock price drops below the lower Keltner Channel, prices are oversold and have a high probability of retracing. The combination of these two signals presents a potential bottom with a typically gradual rise over time.
The Keltner Bottom study uses the following signals:
Charts depicting confirmation of a bottom:
KMB State Modeling – State 8, Target 3 hit on 4/19/2018
KMB closing price crossed below Keltner Channels 2 ATR for 20 days on 4/20/2018
KMB chart after the bullish signal on 04/20/2018
Trade results after buy signal:
Bull Call with 25% profit and 100% stop loss
Entry 04/20/2018, 31.37% profit achieved on 04/27/2018 (In trade 6 trading days)
Bull Put with profit target of 80% max profit and stop loss of 50% of max risk
Entry 04/20/2018, 80.90% of max profit achieved on 05/21/2018 (In trade 22 trading days)
For additional option strategy results and detailed discussion with one of Options Strategists, please fill out the form on the right side of the page.
Explanation of the signals:
1. Keltner Channels (KC) are volatility-based lines set above and below an EMA (exponential moving average). Keltner Channels are similar to Bollinger Bands, but Keltner Channels use ATR (average true range) to set the distance between the lines, whereas Bollinger Bands use standard deviation.
2. Average True Range (ATR) is a stock's range between the high and low price on any given day. It reveals information about how volatile a stock is. Large ranges indicate high volatility and small ranges indicate low volatility.
3. Exponential Moving Average (EMA) is a type of moving average that is similar to a simple moving average, except that the most recent data gets the greatest weight and each price value gets a smaller weight as we go back in the series chronologically.
4. State Modeling™ is a proprietary signal from Delphian Trading. Stocks are in a state numbered from 1 to 8 at any given time and only in one state at a time. States 1, 3, 5 and 7 are bullish and States 2, 4, 6 and 8 are bearish. State 1 is extremely bullish while State 8 is extremely bearish. This signal allows users to find symbols based on their current state, current state profit and loss targets and whether or not their current targets or stops losses have been met.