Reading the markets with MC4 trading system

In this video lesson we make an introduction to the MC4 system, the result of a decade of study and practice on the financial markets. Operators are on the market to make more and more money, we must understand what they are doing and adapt accordingly.

In this video lesson we show who are the operators that intervene on the market and how they move their money. Let’s talk about institutions and hedgers: it is of fundamental importance for us to know their positions and levels of interest to calibrate our operations.

If we put in relation open interest of options and futures, volumes, price of the underlying and implied volatility we arrive at the formulation of an opinion regarding what are the expectations of the market. We called this trading system MC4, Money Chart 4, which is a 4-variable money movement chart.

We learn to carry out the static analysis of the open interests present on the option chain of an underlying. This analysis allows us to understand where the operators’ money is positioned in call and put contracts and therefore gives us indications of the interest they have in the levels of support and resistance that are created in market fluctuations.

We learn to perform the dynamic analysis of changes in open interest present on the option chain of an underlying. In fact, it is possible to analyze the deviations between a day y and a day x, to evaluate the movements of the money of the operators on the market, in order to understand if and how much their expectations about the evolution of prices and volatility have changed.

We investigate the relationships between the price of the underlying and the open interest of the future and between the open interest of the options and the open interest of the future. In fact, the movements of the operators’ money take on strength and relevance when they are accompanied by an increase in the open interest of the future.

Let’s deepen the analysis of the cumulative distribution of the open interest of calls and puts. This analysis shows us the aggregate portfolio moneyness of the market for each strike, in relation to the price of the underlying and the equilibrium point of the two accumulated. It provides us with useful information to understand where the trading range areas are and where those of momentum are based on the monetary positioning of the operators.

We think about the relationship between the market profile and the market levels identified through the analysis of open interest. The monetary positioning of the operators in fact gives concrete relevance to the value areas, volume gaps, control points: the market profile parameters are contextualized in the financial interest of the operators.

In this videolesson we explore the implied volatility and the implications on the distribution of the underlying’s returns. We visualize three types of volatility skew to show how option prices change in market situations subject to the fear effect. We give a classification of the volatility on the different levels of the cumulative distribution of open interest.

In this videolesson we take the market movements that go from October 2019 to May 2020 and make a case study to show how the institutions have moved in a particularly complex moment like the one experienced. We examine these market movements with the MC4 model by relating prices, open interest, volumes and volatility.