How to “Front-Run” Triangle Breakouts

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How To Front Run The Next Big Takeover For 40%+ Gains

If you’re like me, few things get your blood pumping faster than when one of your stocks gets bought out—sending its price skyrocketing.

I’m writing you about this now because it’s fresh in my mind: subscribers to my Hidden Yields service recently bagged a 58% total return in less than two years on reinsurer Validus after it was snapped up by insurance giant American International Group in a deal announced in January.

A big part of that gain came literally overnight—the stock popped 45% from its previous closing price when news of the deal broke.

I’ll share the name of an insurer that’s set to be the next Validus in a second. First, let me tell you a little more about our 1-click “buy the takeover” strategy—and how you can use it yourself.

How We Beat AIG to the Punch

A big part of our double-digit gain on VR hinged on its price-to-book-value ratio, which we watched closely, striking at two points when the stock had dropped to a level even with book value—or what Validus’s assets would be worth if it were to be broken up and sold off.

So because VR was trading at book value in February 2020, we were paying full value for its assets. But the key is that we got its actual business for free!

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And what a business—VR sells insurance and reinsurance (or insurance bought by insurance companies to manage their own risk exposure).

Insurance, when done responsibly, is a huge moneymaker. Firms collect cash up front from their customers, in the form of premiums, and may not have to pay it out in claims for a long time, if ever. They then invest that money—called the “float”—and earn income on it.

Validus has been great at leveraging its float and handing the spoils back to shareholders: between its founding in 2005 and my 2020 buy call, VR had put $3.57 billion in investors’ pockets in the form of “regular” dividends, special dividends and share buybacks.

Put another way, Validus’s market cap at the time of its IPO was $1.84 billion, so folks who were in at the beginning had already received their investment back twice over, just in dividends and buybacks.

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VR then went on to hand us a nice total return over the next 19 months—until Hurricanes Harvey, Irma and Maria sideswiped the stock, driving its price-to-book ratio back to 1x, giving us another chance to buy.

Here’s what people forget about disasters: while they do force insurers to pay out higher insurance claims in the short term, they let them charge more for insurance and reinsurance in those areas afterward, goosing cash flow in the long run.

The result was a 44% gain in just 4 months—from the time we bought the dip till the takeover was announced.

The takeaway: when bargain-hunting insurance stocks, keep a close eye on price-to-book. When it dips to 1x—or better yet below—it’s time to make your move.

Another Cheap Insurer to Buy Now

As I write, there’s another reinsurer that’s showing the same signs VR did.

Lincoln Financial Group trades at less than book value today—just 92%—a level it hasn’t seen since November 2020. That’s ridiculous when you consider that LNC grew earnings, sales and book value per share at double-digit rates last year.

You may be wondering how book value can go down while book value per share soars. It’s because management knows how to bargain-shop its own stock: it’s been buying back shares hand over fist in the last five years, slashing the total outstanding by 17.3%, thereby driving per-share book value upward.

Lincoln’s buybacks are currently on hold but will resume in Q3, now that it’s closed its $3.3-billion deal for the group-benefits business of Liberty Mutual, which will start chipping in to the bottom line in 2020.

Buying now also gets you in on one of the most explosive dividends in the space: even though the payout yields just 2.0%, it has exploded 3,200% since LNC resumed dividend hikes following the financial crisis, in late 2020.

Lincoln’s $14.7-billion market cap could make it a little tough for a buyer to acquire. But even if you don’t get the adrenaline hit our Validus owners did, you’re still getting a history of 3,200% payout growth, with more to come: just 33% of LNC’s free cash flow heads out the door as dividends.

Further upside—and payout growth—will come from rising interest rates (boosting the income LNC collects on its float) and profits from the Liberty Mutual buy. Snap up this world-class business now, while we can still get it for “free.”

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Open positions on strategies in current bar and with more flexibility

Allow to trade on any current bar price when coing strategies in pine script.

Right now if we use strategy.entry on current price it will open the position on the next bar at open price.

It should allow to open the position on current bar (not next one) and at any price of the current bar (not only at open/close price).

This will be useful for backtesting purposes, right now some strategies cannot be backtested because of this.

For example “open long position when current price is higher than prev close”. The script will open the position on next bar, and that price could be very different

Ok so tell me what is wrong this this then, if I was allowed to trade inside a bar

if (price==bar.low) buy 1M shares

if (price==bar.high) sell 1M shares

Get the point? No backtesting system allows trading inside a bar. Use a lower timeframe to get more bars.

I don’t see any problem with that, the idea is to allow to buy with specific price, the idea is to execute the entry/order “instanstly” not on the next iteration
You could buy at low price and sell at high price on the same bar.

And some times you cannot use a lower resolution, what if the strategy is based on 1m or 2m candles?

I don’t see the point of delaying the order execution to the next bar and to force always the “open price” that’s not how the strateges work on real !
We execute orders when it hit some price, the next open bar price could be really different from our trigger condition!

Bars contain future information that cannot be traded on in real life, which is what my example showed. Maybe this one would be easier to understand

if (bar.close > bar.open) buy 1M shares at open. See that problem with that?

More importantly, price is not continuous and infinite like you seem to think. If you look at a bar that opened at 10 and closed at 20 and you set a buy at 15, you think you should always get a fill at 15? Wrong. The price could have gapped from 11 to 19 with no possibility to ever trade at 15 in _real_ life. And none of that information is captured inside a bar. The _only_ known prices in a bar are open,close,low high and the _only_ ones you could specify to attempt to get close to are the time based open and close.

Lastly, regarding “what if the strategy is based on 1m candles”. I call BS but regardless, the answer is easy, use any number of other platforms that support secs or ticks.

bar.close > bar.open and buy at open does not make any sense, is your responsability as a developer to code it correctly.

And I know this won’t work fine for real time, but I’m talking only for backtesting, historic data, to be able to test our strategy is much better to execute the orders instantly at any price on the bar. Even if that price was not executed due some gap, is a much accurate approximation to our strategy conditions than opening the position on the next bar!

How do you solve this?:
“If current price is higher than previous close price, then buy at that price”
With TradingView it will buy at the next open, and what happens if next open is much higher because the current bar was a big green bar?
What is the problem with just puting the order on the current bar at some desired price for backtesting? in that way we could mimic better the real market situation at that time.

lol, what is the purpose of backtesting strategies that dont actually work in real time?

Not “With TradingView” With EVERY backtester.

There is no such thing as current price. There are only bars with 4 prices. Next bar open is earliest “current price” you can use. USE LOWER TIMEFRAME

lol real market situation. in a real market situation 15 1-sec bars would go past before your fat fingers were able to type out an order

you are not following me, the script won’t work in real time, but the backtest will mimic better the real time situation for historical data
This is only for backtesting! historic data, to mimic better the real market situation on historical data, not to trade in live.

The strategies I am testing are for 1m or 2m, I can’t use lower timeframe! I need a way to put the orders faster on the correct price when I’m doing backtesting, not at the next bar

There is no such thing as your flawed notion of “correct” price in any historical or live real market, just your signal and the next available price. The only known next available price in historical data is open of next bar.

You don’t understand what you really want is TV to support historical second or tick timeframes, which is standard on many many other platforms. What you should be doing is weighing in on the multitude of other threads where people are asking for that.

But whatever. You’ll never get what you think you are asking for because it doesn’t make sense.

You don’t understand, is much accurate to create the order at some price inside the bar than creating the order at the next bar, that’s the point, it doesn’t matter if my “price inside the bar” was not executed on the market, it will be more accurate anyway than the next open price! that’s the point of backtesting

Is even better than tick or second bars, because with second bars I won’t be able to backtest too many days in the past, TradingView is limiting that too, so we can mimic the second timeframe using 2minutes candles and just allowing to operate inside the bar too!

you clearly don’t even know what a tick bar is, but if you did, you would understand very clearly that the open of it, which you are so desperately trying to front-run, actually represents a price you might be able to get in real life.

over and out, you will learn the hard way clown

and what is the point of discussing the tick bars? TradingView does not have that and the tick data will be really huge for backtesting (or TradingView will limit the past data and hence we will be able to backtest only a few days).

If market is liquid then there is a big chance that almost all the prices inside a bar were actually executed , and even if not the difference will be less than the next opening bar by sure.

Example:
1minute bar (OHLC): 9 – 10 – 9 – 10
Ticks in that minute: 9 – 9.5 – 10
Next open: 10.5
If my strategy is satisfied by current open price (9), and I want to buy at that price, I can’t ! it will buy at next open: 10.5 !
Even more, if my strategy is satisfied by “$9.3” then even when that price was not executed on the market, is much better to allow to open the order at that price than opening the order at “$10.5”.
This is backtesting! I don’t care if the price was not real, is not a real operation, is just for testing the strategy, real market jumped to 9.5 but even in that case is much better to use “9.3” than “10.5”

Suppose this strategy:
“Buy if current price is higher than previous high”
And suppose these bars:

PREV HIGH: $10
CURRENT BAR (OHLC): $10, $13, $9, $13 (green bar)
NEXT BAR OPEN: $13

With current Trading View we will buy at $13 (next bar open) but in “real live market” we will buy at $10 if market is liquid enough, or probably $11.

A similar situation (red bar with high higher than prev close)
PREV HIGH: $10
CURRENT BAR (OHLC): $10, $13, $7, $7
NEXT BAR OPEN: $7

In this case we will buy at $7, but in real market it should be again at $10, or maybe $11 or in the worst case at $13, not $7!

And all these examples could be even worst if there is a gap on the next bar!

So it’s important to open the orders instanstly to do a better backtesting, not waiting to the next bar

The orders in backtesting make no sense in a sensible trading strategy anyway. They only suit you if you ALWAYS trade on bar close. And even then they assume that if you for example set a stop at 5 dollar, the bar opens at 1 and closes at a 100 you would wait until the end of the bar to get out of the trade. No matter how fat the fingers, I don’t think a trader still exist who finds this a useful implementation of a stop. You would want to get out on 5, not 100.

This trade is stopped at the next bar open, not at the stop price you can actually enter as a function parameter. Makes no sense to me.

If you are able to calculate a price for entry, profit and stop within your strategy you should be able to tell the system that you assume to trade at those prices. Given the example above if priceStop is 5 and the bar closes at 100, assume the trade would have happened at price 5, not 100. Easy.

Same with limit trades, just use the price given for the trade if its within the bars range. You can still time it on the end of the bar, don’t care. But at least the backtesting results would start to make some sense.

You could add an extra parameter to the trade functions like useprice = true/false to enable/disable trading at given prices. Default false and its not breaking anything.

How Traders Use Front-Running to Profit From Client Orders

About $5.3 trillion changes hands daily in the foreign exchange market. When banks make trades in currencies on behalf of customers, similar to when they trade other securities like stocks or bonds, they are supposed to put the client’s interests ahead of their own. But that’s not how it always works out. In a case announced on Wednesday, prosecutors say two HSBC employees used information they had gotten about a pending client transaction to trade ahead of it, turning a profit for the bank in the process.

This is called “front running,” a practice in which a trader places orders on a security for the firm’s own account, taking advantage of advance knowledge of orders coming from its customers.

In the case in question, the customer was looking to exchange about $3.5 billion for British pounds, a fairly large transaction, says John Halligan, the president of Global Trading Analytics in Rutherford, N.J. “It would have made the radar.”

A trade that big has the potential to move the price of that security. Under normal circumstances, the transaction would be handled to minimize that risk, saving the client money.

This is where the front-running came into play. The bank employees bought British pounds before placing the client’s order, federal prosecutors in Brooklyn say, expecting that the large transaction would raise the price of the pound. The client trade was set up to be done in two stages roughly 40 minutes apart in the early afternoon on Dec. 7, 2020. The HSBC employees had already bought pounds in the days leading up to the transaction and, while they were executing it, they traded in a way that pushed up the price of the pound even more, something the prosecutors call “ramping.”

Front-running is not an uncommon practice. In 2009, regulators cracked down on 14 Wall Street firms for front-running customer stock trades.

Traders with potentially market-moving information are likely to use it, according to a working paper by a group of academics for the European Central Bank. Mutual funds have long complained that their big trades are front-run as word leaks out, leaving them with an inferior price. Regulators have focused on whether big banks use customer information to glean such advantages, either through their own trading activities or by tipping favored clients.

Prosecutors on Wednesday cited a phone call between the defendants during which they discussed how high they could ramp the price of the pound “before the victim company would ‘squeal,’” the complaint said. The price was the highest that day for that type of currency trade, allowing the traders to generate significant profits. How significant? About $3 million when the price of the pound went up, plus another $5 million in fees they charged for placing the trade for their client.

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