Rug Pull Detector

10 Okt 2023

Overview

Have you ever wondered why tickers have such erratic movements that seemingly come from nowhere? These "rug pull" events happen quite often and can catch even the most seasoned traders off-guard.

Unlike most other indicators which rely on historical data to make inferences about future price movements, the Rug Pull Detector (RPD) enables you to take a glimpse into market makers' delta-neutral hedging in real-time.

Market makers by nature must be delta-neutral which means that they cannot position themselves to profit from providing liquidity (either long or short). Liquidity provided to the short or long side must end up in a stock purchase or sale to neutralize the trade.

Volatile movements in a ticker's price movement most often result directly after a period of extremely low volatility. These volatile movements are very often "rug pulled" which ends up reverting the ticker back to the price at which the event first occurred. RPD shows these events in real-time. This knowledge can be used to help determine the most probable near-future direction a ticker will gravitate towards after a rug pull event occurs.



Usage

RPD works on any ticker and on any timeframe and can be used as a tool in determining an exit price for a trade. Vertical shading on the chart indicates a warning signal that a rug pull event may be about to kick-off. Once a rug pull event has occurred and is confirmed, a blue label will appear on the chart with a price. A line is then drawn from the bar at which the event occurred and is extended to each subsequent bar until the price is reached once more; thus concluding the event. Furthermore, red or green shading will be present to easily visually identify rug pull events on the chart and whether they are risks to the downside (red) or upside (green). RPD is broken down into 2 main types of events:

• Active Event - These events are characterized by a red or green shading and a blue price line.
  
• Dormant Event - These events do not have shading but are still identifiable via a blue price line. Active events that are superseded by newer events will become dormant.
  

Active events tend to have a higher chance to return to the initial price point and tend to arrive there quicker.
Dormant events have a slightly lower chance to return to the initial price point and may take longer to arrive there.



Please note:

• This indicator has no way of telling the exact amount of time that will pass before the ticker returns to the identified price; however, in more cases than not - the ticker will return to that price within a reasonable amount of time relative to the timeframe you are viewing.
  
• There is a small chance any single event will never conclude. These are anomalies and do occur on occasion.
  
• Using RPD alongside tools such as the RSI, Anchored VWAP, or other trend-based indicators will help determine when the ticker's price might be about to pivot and head back towards the identified price point.
  

Seeing is Believing:

SPY 1D downside rug-pull

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AAPL 15s downside and upside rug-pulls

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AMD 2D downside rug-pull

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VIX 1h downside and upside rug-pulls


Want to see more? Check out my recent Ideas for more examples of the Rug Pull Detector in action.

Disclaimer:
Any information in relation to the Rug Pull Detector does not constitute any financial, investment, or trading advice. Trade or invest at your own risk.