Today, we are going to explore whether it is possible to be a purely non-directional trader.
These traders initiate trades with near-zero deltas with no preconceived market direction.
Profits are captured by the positive theta that comes with selling premium.
As the market moves, they have rules that dictate when and how to adjust.
Is it possible to be completely directionally agnostic and trade purely mechanically?
Or do they still need to perform technical price action analysis and make subjective decisions?
Let’s survey some non-directional traders who have been seen on YouTube.
John Locke, the creator of the non-directional M3 butterfly, is primarily a positive theta trader.
Yet recently, in mid-2024, he released a video that showed an example trade that is quite directional.
It was a long call. And we know that’s certainly not a positive theta trade.
He said that just because a trader is primarily a non-directional income trader doesn’t mean they can not take directional trades when the opportunity arises.
He knew price action and technical analysis to recognize a directional opportunity when the price of SPX pulled back to a moving average while in an uptrend.
Expecting the price to bounce up in a buy-the-dip strategy, he initiated a bullish 17-day long call.
After the trade made the expected move, he adjusted the trade to lock in some profits and converted the trade to a super-bear trade.
He said he used his income trading skills to help with his subjective directional trades.
In his education program, there is a trader progression.
Beginning and intermediate traders start with non-subjective mechanical rule-based trades.
As they progress, they start to consider market direction and technical analysis (TA).
They start to make subjective decisions about when to enter and exit and even when they might deviate from the rules.
John had created many other option strategies.
Some had a directional bias, even though they maintained a flavor of the non-directional characteristic.
For example, his V17 is a bullish strategy, while the bearish butterfly trade is biased toward the downside.
As traders progress and master multiple strategies, they become subjective traders and may switch from one strategy to another.
For example, if a bullish strategy took a loss, this may prompt them to initiate a bearish trade.
Steve Ganz recently published on YouTube the seven reasons he loves the non-directional butterfly, is another non-directional income style trader.
But if you look through his past videos, you will frequently find him drawing trend lines, spotting chart patterns, and determining support and resistance levels.
He certainly takes TA into account when configuring his butterflies with a slight directional bias.
Tom King, who popularized the 1-1-2 trade, likes to sell strangles.
Strangles are the purest form of premium selling, consisting of one short call and one short put.
The trade starts at near-zero delta and generates income from positive theta.
He has repeatedly said that he likes mechanical trades- just following the plan and its rules.
Yet, he still looks at moving averages, MACD, RSI, and even the squeeze indicator on his charts.
He is not the most complicated TA, but he still looks at the basics to decide if and when he would initiate a strangle and in which underlying.
Amy Meissner, creator of the A14 strategy and who has done a variety of iron condors, says she likes to come up with non-directional options strategies where she doesn’t need to sit in front of a computer all day.
She says that her own personal trading is very nuanced, meaning she uses many discretionary decisions.
Even after creating the rules for the A14, there are opportunities for trader choice.
For these short-term trades, these decisions and choices are based on TA, directional biases, and volatility levels.
Mark Fenton, as The Options Mentor, prefers to trade non-directional calendars and double diagonals when volatility is low.
He trades the all-put flat fly in higher volatility.
His trades are influenced by the TA and his personal opinions on market directions.
He watches the economic calendar to see if upcoming news events may cause significant market direction changes.
Dan Sheridan of Sheridan Risk Management has specialized in range-bound trades for a long time.
He admits that many people are better at technical analysis than he is.
Yet he still trains his students to look at the candlesticks with moving averages, ATR (average true range), and VIX levels before initiating an iron condor, double diagonal, butterfly, calendar, or a combo trade.
Final Thoughts
For traders that are not experts in technical analysis, we would like to think that there would be a strategy where we can put it on at any time without looking at the charts and just follow purely mechanical rules.
Some of us were still looking, and some found something close.
Nevertheless, the use of technical analysis can certainly help with non-directional trades.
Based on studying the styles of the various non-directional traders, we see that all of them use TA to some extent.
While it may be fine to trade direction-agnostic on paper and in backtesting to learn the mechanics of a strategy, as the trader evolves, they will eventually learn to bring in some technical analysis into their discretionary decisions.
We hope you enjoyed this article about whether it is possible to be a purely non-directional trader.
If you have any questions, please send an email or leave a comment below.
Trade safe!
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.
