One of the models developed, our Low Forecast, is intended to approximate the minimum value for a Stock price (soon to be Currency and Crypto) within a certain period of time. These durations are set up in 3 model sequences to provide a means to trade the front week options, back week options, and provide the ability to roll using the weekly targets of W1 and W2 or using the “Forecast Period: 5D”, which the target is specifically a time exactly 5 days from the point being predicted upon.
Onto how to use this and not use this:
Use the Low Forecast as a likely location during the Forecast Period of touching. Since this is the case, do not place your Stop Losses at the Low Forecast, place them below!
That being said you can use the Low Forecast to place the strike price of your Put contract, preferably below, but can be used as a guide if you are short the actual stock and interested in hedging your short position with a Short Put to generate income or hedge a gain.
This is probably the most consistent application of the Low Forecast singularly, by selling a “Naked” put against a position, the worst case scenario is you own the stock at the end of the week. In my view, the trade that poses the least risk if managed appropriately.
Another evolution of the Short Put is the Short Vertical Put. What this means is to hedge your Short Put with a Long Put. The likely location of where you would place this is preferably below the Low Forecast minus the error of the model as specified in the “MAE” or Mean Absolute Error of the specific model being utilized.
The anomalous zone of the forecast is the Low Forecast subtracted by the MAE. In the event it is below this location, in my perspective, this would be considered an anomaly. Depending on your trading strategy proceed with caution and learn to hedge or roll your position.
