educational

Gamification

If you think that the trader’s activity is similar to a game, I would like to first say it’s not. For many reasons. What makes to someone the trading activity similar to a game is a misconception of the bet. The novice tends to see a buy of a stock share as a bet, and, well, it somehow is a bet if you know nothing of what you are doing. Because it’s not a game.

But staying with the game analogy, I would prefer, to much adrenaline-driven action games, the more time related Virtual Regatta Offshore, a provider of oceanic regattas simulators in real-time with real conditions, here in the current RORC 2019 where I participate as minushabens. In this case, it is a 16/17 days ride from the Canarias to St. George’s Island. We are about 4 days from the arrival and I’m placed quite well: I was lucky, indeed!

 

Let me explain: the player have to decide its route considering the present condition of the wind and the future evolution of the wind, based on some known performance of the boat we are racing with (known as the polars of the boat, simply the speed of the boat at different wind speed at all angles). So, the player relies on the weather forecasts to evaluate its alternatives. While in real-world regatta you may apply a wide sort of tactics against your opponents, here you just race against the wind. No need to know the real sailing (it helps), we race against a worldwide huge number of participants. Here, at the RORC 2019, we are 37.000 and counting.

Now, I can guarantee you that my choices are not bets. Sometimes, as it is now, the choice has been more favorable, others are not so exciting, but if you want to appear in the first third of the ranking you cannot trust the simple bet. You must change your mind: you are challenging a force of nature, much bigger than you and good forecasts for 5 or 8 days ahead may easily change in 2 or 3 days, not much certainty around. Is anything sounding familiar? Now, if you substitute the word wind with the word stock market (the S&P 500, in this case), is it clear the analogy of the behavior of the player of the regatta and the position trader on the index?

If you see the game as a be-there-at-that-time-to-be-elsewhere-at-another-time dynamic, it’s not difficult to place yourself in the first 700, possibly between 300 and 500, where I often find myself at the arrival. A bit of luck today is appreciated. Obviously, you bet, there is a number of route calculators available as apps and websites. Every service is based on one of the available forecasts, then provides different best paths, but the game platform has often slightly different conditions and there you are gaming. You must be well placed in the space and time of the game to fully take advantage of the suggestions from the routing software. Here, as well, a bit of luck is largely appreciated. To remain once more in the game analogy, you are requested to dominate space and time, always need to consider the two as a whole. This is a common analogy with adrenaline games.

End of August. r.Virgeel is already positive for two days and gives a projected rv.Target around +3%. Great time to jibe!

The target was then reached at around 3000 in 10 days.

 

PS. Update – The RORC 2019 finished with me at 787th / 39101

 

 

Posted by Luca in educational, free, generics, performance, psychology, selected primer, 0 comments

r.Virgeel’s trading model

 

The r.Virgeel’s model is stable since enough to let me say it is now entering its early maturity. I’m working in the refinement field to gain speed, affordability, stability. Less, and this is my fault, I work in the field of communicating how to read and use the model’s output. This is obviously useful to newbies (to the website and also to trading), but also to experienced traders and investor, and even to long term subscribers, that already know the mechanics of the forecasts.

The global goal of r.Virgeel is to detect the best S&P 500 market position available: better stay long or short? Then it provides indicators to detect the incoming market waves projecting targets, stops,  with the support of confirmation indicators. r.Virgeel was not conceived to be a trading system, but it sorted out to be a sort of. I do not push it, I always suggest to get the suggestions and verify inside your framework.

Let’s take the Long Position and its dynamic: r.Virgeel detects a deteriorating downward move and warns the short end is near. Signals that mark the bottom are fired. r.Virgeel confirms the long position. Occasions to add to Position are detected, to let you enter/add with margins of safety. Warnings are fired when the position is detected weakening. Next inversion is detected/confirmed and so on.

The previous is the ideal path that resides on the learning side of the model, then when applied to the real day by day market, some signal may be missing, some turn may be a bit bumpy, some uncertainty arises here and there, usually sniffing incoming turbulence.

Please, note that these warnings are to be used inside your framework: your trading and investing style must not be rebooted, just may integrate the r.Virgeel’s suggestions. It may need some time to adapt, but the utility of a totally unbiased a.i. robo-advisor is out of doubt.

Here a visual representation of the Long Position as detected by r.Virgeel. For the opposite Short Position, just reverse the rules.

We have the three main indicators rV.Stop, rV.Target and rV.Position that defines the global situation. Some confirmation indicators are needed because sometimes the main indicators diverge and generate uncertainty. (see bifurcation to approach the topic)

In the real world, here you may see the Alpha Chart generated on 28th of August 2019: it summarizes .Virgeel’s opinion for the incoming wave, well confirmed by recent market action.

 

 

 

Posted by Luca in educational, free, selected primer, 0 comments

As you asked

I have received from a reader:

Am planning to take monthly subscription. Before subscribe please let me know below queries.

Which platform needed to do trading ?
What exactly I get forecasting daily?
Any additional analysis i need to know? Before take trade? Will i get entry and exit positions?
Will I get text messages  to mobile?
How much capital needed?

 

Here my reply:

Which platform needed to do trading ?
Whichever you want. Trading activity is totally up to you.
What exactly I get forecasting daily?
The daily forecast is based on the daily timeframe and I enclose a few samples from of the Alpha Chart for your evaluation. It is composed of many indicators that outline the expected behaviour of the market in the immediate future.
Any additional analysis I need to know? Before take trade?
Investing and trading is a high-risk activity: consider that statistics about the new traders entering the market says that they are destinated to go out of money in about 18 months at a rate of 80/85%. Every trader has its own attitude and this is first what I suggest to you: find the market and the time frame and capital that gives you confidence. Some technical analysis may help, but the simpler the better. I love Elliott’s Wave theory and I’m sure every trader has its own preferred tools.
Will I get entry and exit positions?
r.Virgeel (the brain of the a.i.) was not designed to be a trading system, but it gives signals and a global evaluation of the best-suggested position relative to the market. It produces a chart and a word report to support your vision of the market.
Will I get text messages to mobile?
No
How much capital needed?
It’s a hard question to reply: it depends on your expectations, but basically on how much money you are ready to lose, before getting into a panic. Loosing is an active component of the trading activity. You need to learn (if you do not already know) how to reduce losses and you need to learn (if you do not already know) to trust your tools to maximize your profits.
If you are starting right now, I would suggest you try with a very small account, not much more than your pocket money. In this way, you have a sort of hard stop loss if things go wrong. Consider that every trader has learned the lesson going broke at least once, me as well.
Hope it helps.
Posted by Luca in educational, free, generics, hints, 0 comments

Forecast/ability

Following my previous post “New Tools at the Horizon“, one question was twirling in my mind: why the stock market is forecastable, but the forecasts are not affordable?

The forecastability of the market is an evidence, because if it were not – being it just a random walk – there would not be the possibility to have an output from the neural networks that manage the forecast process. For a neural network to work, there must be some sort of structure inside tha data that can be used to produce the forecast/diagnosis.

This chart shows a blind neural network, unable to recognize any pattern in the input data.

And this hidden structure is present indeed inside the market data, otherwise r.Virgeel would be totally blind and dumb. This is a sample chart of a blind network: not structure is evaluated and the output is just an array of zero values.

The fact that we humans do not recognize any structure in the data is irrelevant.

So we have a (hidden) structure, the neural tools recognize it, but the output ranges from nicely precise to totally incorrect, without having the possibility to know how much the result is matching the real future movement of the price.

 

Now, I begin to see the light.

The price of a financial instrument is the result of an ask/bid process, where a multitude of actors (I’m considering liquid markets with a wide audience) buy and sell that instruments under the suggestion of a personal forecast that the price of that instrument will rise or fall in the future.  Every partecipant to this activity actually does a personal forecast every time he/she executes an order. So, the resulting price is the sum of all the collective forecasts and, at the end of the day, this collective forecasting process generates the push that contribute to move the trend.

[revec2t text="Every partecipant to the market activity actually does a personal forecast every time he/she executes an order."]

In other words, every attempt to forecast the market is a process of forecasting a collective forecast activity, a meta-forecast: no surprise that somewhere in the process one or more dimensions are lost and the result is probably something similar to a shadow, that let you recognize the original shape under certain conditions and  totally mistify the original shape under other conditions. When you project a multidimensional event in a field that reduces the dimensions (think to a 3d object projected onto a plane) you lose a significant portion of information and you may generate a lot of ambuguity.

 

A 3d object projected onto a 2d planes may generate very different shapes

 

Now, the forecasting process is just a minor side activity of r.Virgeel, even if it is the most appealing and mind-storming:  r.Virgeel is mostly a diagnostic tool that reads current data and find historical patterns that match the best market position available, with a significant success.

 

 

 

 

 

Posted by Luca in a.i., accuracy samples, educational, free, model insights, r.Virgeel

In gloriam of technical analysis

If you have read some of my notes, you may have formed the idea that I hate technical analysis (ta). That’s not true. Dealing with r.Virgeel, I have seen the dramatic limitations of ta, but also some interesting aspects.

For ta, I refer to a program (or a website) that let you chart the price with some indicators overimposed, as trend lines, moving averages, RSI, Momentum, Stocastic, and a full library of others. The final aim of using it is to affinate the timing, having triggers that ring the alarm. Every platform is different, but you should always have a range of options to even automatically execute orders. And a plethora of indicators, you have to study them. Every ta tool has some lag encapsulated and gives a fantastic reading, ex-post and with “correct” parameters.

What I’m suggesting, is that ta is affordable locally, when you know that the probabilities of an event are in your favor: to accomplish this you must have a very clear, simple and realistic action plan and stick to it totally open minded. Also I suggest to experiment with automated execution, applying it “locally” to enter or exit a position with the help of some triggers. If you feel shy to make the transition from decision to act and acting in itself, this can help. Personally, I’m a big fan of personal execution.

Then we have Elliott’s Waves. It is considered a branch of canonical ta, with something esotheric. I love Elliott’s Wave Theory, even if I’m totally aware that is foolish to trade using just it. You know, as your eyes get trained in recognizing Elliott’s Waves, then you start seeing them everywhere.

Here in the chart, the Elliott’s Wave for current market is detected as shown, so we are near the end of the accumulating phase of a fifth wave that has two main targets, at 3000 and 3300, in EW’s opinion.

 

chart of weekly SPX from AdvGet

Some technical analysis programs or websites give the possibility to fully automate your trading or use an already existing bot to trade your account. Now, if any of these system should work, you will have plenty of multimillionairs around: what really happens is that the bot might gain some momey for a while, to inevitably crash as soon as the volatility changes, or another parameter goes mad, even if the system is sophisticated “enough”. Crashing the bot, you are out of play overnight, your account is zeroed soon and fast. Not nice.

Ta can be really useful, with few simple indicators and some active feedback, to have a good timing for your capital managment. Maybe in the ’70s and the ’80s , you could make money with just ta, today you have to gain some skill with it, but it’s not sufficient.

 

 

 

Posted by Luca in educational, free

spxbot limits

Different trading and investing styles

I’m fully aware of the basic fact that every trader and investor has it’s own style. Many school of thinking, but everyone is really different, particularly in the private sector. If a private trader survives the first 18 months without being wiped out, then she/he may have the possibility to play on. It’s a sad and real statistics: 95% of traders are wiped out in the first 12-18 months of activity. So, if you are a private trader since years, you are in the 5% and you have built your skills with iron and steel, it’s not easy to approach a new language.

In effect, a.i. tools are very comprehensive: the result is there, fast, precise, direct. You just have to pay attention, when required, then to act if necessary. The whole decision process that makes the foundations of a trading system is questioned. It’s not an easy process, it will not be.

 

Mind changer about traditional tools as t.a.

Artificial Intelligence tools, not only r.Virgeel, implies that you change your mind about the instruments of analysis. Are you there with any of the technical analysis tools, or with a realtime CFD, you plot your oscillators, you backtest an optimal setting and decide, based on a unique line of data and a monodimensional analysis. A.I. can analyze many different correlations concurrently, sorting out with surprising results. It is obviously different, it is much different.

If you are totally unaware of a.i.. and neural networks, you do not need to read huge books to understand. You use Excel, for sure. Read this, then it will be easier. Made simple, supercharge and megapower a spreadsheet and you have a neural network. Then you have all the a.i.: image recognition, diagnostic, speech recognition, text recognition, and you name it. Once you understand the brick, then the wall makes sense.

The fact is that an a.i. robo-advisor makes the dirty work for you. Collects data, builds tables, generates logic, connects correlations, normalizes the resulting cloud of data and generates the output data. Whooo! All in one. And it’s fast!

Low adrenaline, stress reducer

People love adrenaline, excitement and, basically, confusion. In the long term, this attitude generates deep stress, that reflects into bad behaviours. If you are a few minutes ticker trader, r. Virgeel is not for you, probably. Well, as it  gives a daily trend, it may help, but…

Once you have a good robo-advisor, you need less to have opinions about everything. It monitors the data, it makes the loops, it builds the report. You must trust it, follow the suggestions and pull the triggers. Stress is highly reduced. Instead of needing to have an opinion about everything, you just have to evaluate a very well documented “opinion” generated by the a.i. model. You know, I like to say, it’s different.

For what I can see, robo-advisory is taking shape as large (and expensive) premium sites with a large choice of instruments, with applied different forms of analysis and previsions. I argue that the neural analysis is often simplified and this can be a good thing, overall. In other words, these sites offer a large set of instruments and an automated training.

Here at spxbot it’s a completely different music (well, it’s a premium site, but it’s cheap). First, just one instrument – the S&P 500 – here. Then, the correlated instruments are hundreds, to represent the global finance world. All for one, we may say 😉 More, r.Virgeel is highly deparametrized, meaning that it work by brute force and not by rules. Finally, r.Virgeel is trained “personally”, bar by bar. Total human supevision on the training of the model. You know, it’s always the same old story: you put rubbish in, you get rubbish out.

 

 

 

 

Posted by Luca in a.i., educational, free, psychology, selected primer, 0 comments

Daily forecast accuracy sample

I wish to stick to showing you samples of the r.Virgeel activity, in (almost) real time. There is no other way to test r.Virgeel than real time. Also, to avoid the “well chosen sample” effect.

Here, on the left, the forecasted bars evaluated on May 17th, on the right the chart of the actual bars until yesterday close, May 30st.

 

Left: forecast of May 17th Right: actual bars at May 30th

 

I show you the forecasted bars because it is by far the most difficult indicator to calculate, bars come in from the future squishly jigsawing and with modulated velocity.  So whenever I want to evaluate r.Virgeel model, I first look at the future bars. Also, the future bars are a totally unattended calculation, meaning that there is no human intervention at all, just the correlation of a huge number of factors is taken in account.

Looking at the forecast, when it was issued, you might argue that a choppy period was to begin, that should not exceed the last high and that might break the last low.  Two down days, followed by a reaction that flattens and returns slightly negative. You ‘d have known all this in advance, various days in advance. Either you are an investor or a trader or even a daytrader, you might take advantage in various ways from the forecast, but you are psychologically prepared to what is coming.

From the comparison ot the two sequences, I point the attention on the fact that the incoming wave is demonstrating to come in faster than expected by the forecast. This is a fact I’m long pondering. Almost all r.Virgeel forecast show this reverse lag, but I’m still detecting. One possible reason is the fact that the databases of r.Virgeel goes back to an era when everything, in trading activity, was slower: no internet, no direct instant execution, non continuous markets, just newspapers and a phone to pass your orders to your broker or bank. The ever accelerating time implicit in the trading activity is an interesting subject of research. Another possibility is that time in itself might be an accelerating media, but here I can’t go further.

 

 

Posted by Luca in accuracy samples, educational, free, indicators, 0 comments

The Indicators

Sample chart from May 7, 2018

This post explains the main website feature: the indicators that form r.Virgeel vision of the market.

The indicators are:

Bars ahead – neurally calculated – H/L/C is forecasted for the next 24 bars
Target– neurally calculated – where the current move is heading
Stop – neurally calculated- a value that confirm the trend and generates alerts of reversal
Position – neurally calculated – a simple, but detailed, as a neural swing system, Position is calculated in three fashion: the positive attitude, the negative attiture and an overall attitude. In moment of uncertainty this help to have confirmation of the reading.
Color Bars – neurally calculated – an evaluation of market’s potential energy through color code. It has integrated the old Stamina indicator.
Signal – neurally calculated – top/bottom pattern recognition. It’s the simplest original version of the Position indicator: it fires probable tops and bottoms detection.

FastTrack – The standard report integrates now the FastTrack levels, from daily, weekly and monthly  models for SPX. The daily D-FT is available for:

  • S&P 500
  • Dow Jones Industrial Average
  • Nasdaq Composite
  • DAX Frankfurt
  • SHC Shanghai
  • GOLD
  • OIL WTI

 

All indicators are calculated indipendently from one another, giving the opportunity to let them reciprocally confirm.

The text on the left of the chart summarize the relevant numerical data, more numerical data in the body of the mail/post.

 

BARS AHEAD

Coloured bars. It’s a glimpse into the future: they represent the less improbable path the market is supposed to follow, for the next 24 bars. In the background, the latest monthly and weekly forecaste bars give a more complete and synchronical view of the coming events.

 

TARGET

Blue dots, blue lines. It’s a glimpse into the future: the Target is an evaluation of the price level that the S&P is bound. More the price nears the Target, higher the probabilities of an imminent turn.

STOP

Red dot, red lines. It’s a reading of the present. The Stop is the value that, if broken at close, suggests that the position has come to an end. It works either for long or short positions. The Stop is free to fluctuate and, by experience, the descending Stop is a sign of strength of the long position (and reverse), usually occurring during choppy phases.

Also, the weekly Stop is present on the chart (darker red band).

POSITION

It’s a reading of the present. The Position indicator is the most evolute and mimicks a complete trading system, with entry signals, position confirmation and exit signals. It is calculated separately for the long and for the short positions.

The Position indicator provides the following signals:

  • Open Position – generates signal triangle
  • Add to Position – generates signal triangle
  • Stay in Position
  • Reaching Top/Bottom – generates signal triangle
  • Close Position – generates signal triangle

that follow the ciclical activity of investing and trading.

 

SIGNAL

It’s a reading of the present. The Signal indicator is the parent of the Position indicator and it was, at a certain point, removed from the charts and dismissed. It has the aim to detect the market turning points. Lately, I decided to revive it and use it the signal generation: you may see, usually near the extremes of the chart, there are some small colored triangles. These triangles are generated from the Position indicator and from the Signal indicator and they usually coincide. The triangles should mark the extremes, but more often they generate a cloud of signals around the reversals.

 

Posted by Luca in a.i., educational, free, indicators, r.Virgeel, 0 comments

A brief history of SPXBOT

In the late 80s, I crossed with BrainMaker, a suggestive piece of software that let you play with neural networks. I was working as an architect and I was self taught in the theory of patterns as formulated by Christopher Alexander. On one side pattern recognition, on the other side patterns in reality. Nice field of research.

At a certain point, let’s say beginning 90s, I was ready to take off with a language and code my own tools. Much easier to say, I finally got through a wonderful library that manages back-propagation networks. Straight, fast, error prone, wow! I’ve built many many versions of a tool, that was always showing the same definitive fault, paying the necessity to tune parameters and entering self referral loops.

Mid 90s, big turmoil: in Italy, in Florence, where I lived, in work, in my life. I gave up. I saved everything, backuped orderly, and closed. In mid years zero, let’s say 2005, I was living and working in Milan, working hard building a villa in the outskirts of Moscow for a russian wealth family. It was like having another son, well, a daughter. My love.

It was around 2012 that I begun thinking to the necessity to develop a plan B. Put your skills under short circuit and your plan B will materialize. In the spring of 2013 the design begun to take shape. About one year to collect the data, build the database management, and generate the skeleton of a possible model. The most of the following two years of development are documented in the Market Mind View free blog, already available to snoopies.

The model has been developed since then and I think that it has achieved a stable mature configuration in latest months, mid 2017. The result of four years of work is a model that correlates simultaneously dozens and dozens of inputs, consisting of financial and economic indices as stock markets, currencies, bonds, rates, commodities, metals, energy and more. The largest of the active neural network models has more than 17 million neurons or nodes. The model is heavily deparametrised, as it is set up, since design, to enhance the generalization ability of neural networks, in other words their ability to see, to recognize, to classify. Are you surprised? Software can see? Are we really into Minority Report or Matrix? Can software really see into the future? Well, no. And yes.

Since early 90s, I’m used to chart my modified DMI indicator, here in the Pascal version for the CFD platform. The indicator separates positive (blue) and negative (red) action of the market, as DMI does, using averages as input, instead of the plain data H/L/C. Can’t live without.

Let’s look at it in another way: the neural network always provide the less improbable result, chosen from the archive of possible results it has recorded. It’ a complex relationship: as these data, this possible diagnosis. This classification. This signal. Neural networks learn from the experience you provide them. They do not calculate the result: they know the result, if someone has taught it to them. Otherwise, they guess, in a reverse statistics, the less improbable result. Not the precise result of a calculation, but the less improbable result from it’s experience database. If you teach rubbish to a network, you get… guess? You get the less improbable rubbish.

In mid 2015, I realized that probably the architecture work, in Italy, was over and the neural works were worth the development. I also realized that the information I was producing  was getting sensitive and that induced me to hide from large public, giving life to this premium website. I mean, I wanted to continue my research and to have interaction with selected interested people, because this interaction is precious. It’s real fuel in the development process. So the site is available under a cheap annual fee, because I prefer a selected small club to a vast messy audience.

 

 

 

Posted by Luca in educational, free, generics, model insights, selected primer, 2 comments

Noise

Noise is everywhere.

We could even argue that trends are made out of noise. Inside massive markets, volatility can be your worst enemy: psychology again comes on stage. Every turn in the price creates uncertainty and uncertainty accumulates. Your confusion grows. It’s difficult to make correct investment decisions and timing when in confusion.

If you approach a technical analysis platform, you get confused by the quantity of tools available. Wise designers batch all similar indicators, so that you can have some categories available. More common and old indicator to reduce volatility is the moving averages family. It is impossible to build a proficient trading system using just moving averages, but they remain the basic tool to every trader. Build your set of indicators reducing their number as much as possible. Since years I use just one momentum indicator, a modified DMI, and two volatility stops.

the lrDMI in action

Doing all this, we are immersed in noise: home, streets, commuting, workplace, public places, noise everywhere. Sounds, clamors, rattles, visual rubbish, flashing lights, advice, signs of every kind, noise.

Can you manage noise? Can you hack the noise and view the layers it is composed of? This is a point of a certain relevancy. I myself have a serious problem managing this matter because I do not want to be overwhelmed by the effort of having always the right opinions. As everyone, I’m weak and confused. This is why I developed the Amodel, or the brain that analyze the S&P 500 and that powers this site, using tools that are mostly not affected by noise, pumping it’s brute force energy and teaching to “it” how to read the market. The project is now about four year old, it is surprisingly efficient and under continuous development.

The Amodel is different.  It looks at the markets in terms of correlations, dozens and dozens of markets, simultaneously, and, to be sincere, it has in mind just one idea. The basic ultimate assumption is: “markets are all correlated and the S&P 500 is a part of these correlations”. The model does not read news, does not watch tv, does not navigate social networks. Just numbers. In fact, a huge amount of numbers. Just one simple statement and a lot of data, these are the basic ingredients of the recipe. Then add code, some various thousands lines of code. Agitate. Stir. Fry.

 

 

 

Posted by Luca in educational, free, psychology, 0 comments

Closing the position

You are holding your position and then, at a certain point, you decide to close it.

Deciding to close is very different from deciding to open. In the latter case you are starving, you want to chase. In the former case you have a background of days collecting gains, often a sparkling kind of magic that gets you nut.

You will soon decide that you need an exit strategy.  Not an easy task: it involves many different approaches. There is a practical consideration that induce you to close when a nice profit is there to be capitalized. Another approach can use an indicator to trigger certain market conditions and then enter in closing mode. Some sophisticated technical analysis indicator can track volatility and help you close better. But you are looking for market extremes, innit? Identifying the market extremes is the final object of every system. Find it and money will completely lose value for you.

Whatever the strategy you are adopting, here comes the time to trigger the order and input the execution. Same as the Buy procedure, you press the Sell button instead, if you are holding a long position.  You may decide to sell all-in, in one single execution, or dilute in different orders. In this case, just reverse the Buy strategy. Same effect: just a few seconds and what remains is just the adrenaline and a deaf monitor. As for the Buy operation, conduce the Sell procedure with care, attention and double check any step.  Archive the data and you’ve done. Always evaluate the psychological effect of your actions and search for confidence in your trading platform.

When you are out, you are out. You will often be tempted to reenter the position as new (potential) gains appears. You must resist the temptation, almost always. Market is continuously wavy and a new open position trigger will soon appear. Also, I guarantee, having a relax time between position is positive.

 

coming: Finance for newbies: noise

 

 

 

Posted by Luca in educational, free, 0 comments

Opening the position

You have done all your homeworks and training and paper trading and you are now ready to open your real position. As instrument we will use an etf on the S&P 500, plain and edged, so that we focus only on the variations of the reference index.

Before opening the position, there should be some kind of analysis that gives you an idea of how the market is moving and highlights some peculiar moments when the risk/reward blows into your sails. Let say that you are investing on the daily time frame. You may move on a shorter time frame, let’s say one hour, and get signals from a combination of technical indicators (the simpler the best, usually) that helps you to catch the turning point.

Now that all the setup are triggered, you get operative.

On you trading platform you pick the instrument (here the etf on the SPX), you setup the quantity (100), the price (17.70)  and you press the BUY button. Usually you will see a confirmation screen to approve the action. Say ok and you are the happy owner of 100 etf payed 17.70 for a total invested 1770 $ (or euro, or yen, or any other currency). Game over. All the adrenaline is in circulation and the thing has lasted 7 seconds? Yes, it’s that simple. It’s so damn simple. Always treat your BUY and SELL buttons religiously.

After the execution you are watching the one hour chart and you may setup a stop loss alarm, because it is always possible that the market turns out your position and goes furiously opposite and you always must put a limit to your losses. Let’s say, being this a virtual etf, that a stop loss can be placed  at 17.50/45, with warnings at 17.60 and 17.55. Such a stop loss implies that you close your position (by hand or automatically) when price clears the stop, in this case a bit more of a 1% contrary move. Stop losses have an enemy: volatility. A peak of volatility can wipe out your stop and get you a loss even if then the position would have gone positive. This is why I prefer to have warnings from the price ticker  and than execute the order by hand. You, just use the procedures that best fit for you.

Now abandon the one hour charts and return to the one day, that is your terrain. Do not get fascinated by the fast moving short term market more than necessary: it’s hypnotic and mentally exhausting. If you are suitable for short term trading, you will discover soon.

You may estimate that you have a time window when you open your position and you may dilute your global position in more successive buys. It is probably better than my habit to promise to dilate the position openings and then use an all in technique.

The physiology of trading says that every time you open a position you have a – hopefully short – subsequent period of losses. If you are in a good position, this time is short and you see the light quite soon. If otherwise, probably your position is not so good.

 

upcomingFinance for newbies: closing the position

 

 

 

Posted by Luca in educational, free, generics, 0 comments

Two or three words on risk

 

For the trader or the investor, the word risk is one of the principal keywords. Nobody knows what risk really is, so relax. On the other side, everybody knows what risk means: as animals, we continuously react to external stresses under a risk based strategy, intended to minimize the possible negative consequences. It’s something we have written in our dna, so no way to escape.

When we come to financial markets things get complicate: we put in place our relationship with money, and even something more: our future, our wealth, our possibilities. Yes, that’s it. And you really accept to take the risk to self manage your money and invest in the S&P 500 index? Are you… crazy?

What is  risk? It takes many forms: volatility, opinions, timing, liquidity, rates, exchange, … and  none of them really defines risk. They all knot themselves in a bullet that is pointed towards you.

I’ve been enlightened about risk reading Jim Slater’s “The Zulu Principle”. The explanation is simple and perfectly demonstrated: risk is ignorance. Risk is directly related with ignorance: more ignorance, more risk. More knowledge, less risk. In a topic that you manage easily and deeply, with years of experience, your risk is near zero. At this point, if you concentrate your attention of your real field of knowledge, where you are experienced and learned,  there you can find the key for making good investments with a near zero risk profile, whatever instrument you use. Otherwise, you may study the object of your interest, in my case the index S&P 500, and study for as long as you can manage it confidently. It may be a sector (energy?), a country (Japan?), an exchange rate (eurusd?), a commodity (gold?), etc. and you must master that topic, than your risk is really reduced at minimum.

So whenever you will find yourself drowning in a bad position and with losses, do not blame something or someone outside, just blame your ignorance and learn from the lesson. Knowledge is the key, a serious updated skilled knowledge. It’s not something you can boast of. To trade or invest proficiently you must be honest, first with yourself.

 

upcoming: opening the position

 

 

Posted by Luca in educational, free, psychology, 0 comments

How to choose your trading platform

Once you decide to self manage your money, first of all you need to have a trading account at a bank or a broker. Nowadays, almost every bank offers a trading platform on line, where you can trade a huge number of instruments, mainly stocks, futures, options, cfd, etf, etc and investement funds. A lot depends on the country you are based in, but is easy to have access to foreign exchanges and exchange rates.

Even if you restrict your object to one single stock index (let’s say the S&P 500?), you have a large offer of different instruments with which you replicate the movement of the index. If are newbie, stay away from futures and options. Both are highly risky and you may loose the entire capital much easily. They require some experience. Even experienced traders do avoid trading futures and options to not rise their risk profile.

If anyway you are attracted by futures, you can try a cfd broker. Cfds are replicas of futures, but you can trade them with very small amounts, using margination. Be sure to fully understand the meaning of “leverage” if you want to use these instruments. That’s the key to an infernal mechanism that can go you broke faster than you can imagine.

My suggestion is to nose into the etf world: there you can find a large quantity of instruments dedicated to almost any aspect of popular finance. Etfs cover indices, sectors, regions, rates, forex, you name it. With the brother Etc dedicated to commodities you can trade almost anything.

But we are restricting the field of interest to S&P 500. So, if you browse the list of available etfs, you may identify a batch that refers to S&P 500. They may have different construction, tipically: 1:1 replica of the index, 2:1 replica of the index, 3:1 replica of the index or 1:1 hedged against the exchange risk you assume if you are not trading in dollars. 2:1 and 3:1 exposures double o triple the action of the invested capital, and you can lose a lot. The less risky is the 1:1 hedged for it gives you the net gain or loss of the index, without any exchange leverage.

Almost any platform for trading online offer you a trial period and a training account (usually with a sound 100,000$ ready for you!) to let you evaluate the platform. Do it. Try them and try the ones that offer you a more comfortable platform, maybe extended to mobile, graphically intuitive, easy to use. It will take some days and you will have a clear idea of the best for you around. Ask, read about it and finally open your account for real at your chosen broker or bank. The word that can guide you is “confidence”.

Online trading platforms are rich full of features, with the possibility to use and customize indicators, alarms, charts,  automated trading systems and more. Personally, I hand execute all the orders, but I can see the attraction for automated execution and systems.

Once you get confidence with your new interface, and this is the real and only boring task of the  matter, read carefully on the platform user manual the section that explain order execution and all the option you have to manage your order. You may want delayed execution or an event driven one. You must master it. You must understand deeply and fully how the operation is cleared and you must have the perfect control of the interface. Make exercise with the training platform.

The platform usually let you create a group of instruments for easy access: group the etfs that go long and group the etfs that go short and chose to trade the most traded ones and with a smaller spread. Liquidity is always our best terrain. Platform offers a variety of charts and a plethora of indicators that you can setup to have a good chart at hand. Often, a chart is really worth a thousand words. Some offer  Elliott’s wave analysis and /or tools, neural network analysis, automation tools and programming languages. No doubt that if you can program, you may setup a real good working desk.

A final word: when you begin to trade you enter in an arena where anyone else identify you as the chick. You are going to lose money. Yes, broke and badly. That’s for sure. So be prepared and plan your losses. Losses are the best way to learn, with your losses you pay for your learning and your attention. Now you may focus on how it’s important to protect you capital. Plan that after a certain amount of losses you stop (and you do it!), then study and relax. You can lose 10% of your money in few days and sometimes even in few hours, then it may take some months to recover.

Ready? GO!

upcoming: two or three words about risk

 

 

Posted by Luca in educational, free, 0 comments

Introduction to money self management

This is the first of a series of posts dedicated to individuals interested in investing and trading, but without experience, where I try to explain the basics of money self management.

A lot of people is intimidated by any discourse about money, for various reasons the first being the total lack of formation and experience. Others have followed the suggestions of relatives, friends or even professional advisors and lost money. These are very common  situations that may motivate a person to consider to self manage its own money.

There are a few things that I want to make clear immediately:

  1. about 95% of people that begins to trade stocks or other speculative financial markets go broke in 12-18 months, this is the statistic. Your first attention must be on not losing money.
  2. every financial instrument has its own price and there is absolutely no meaning in the relative values: i.e. the fact that General Electric share price is today at 31.74 and Caterpillar is 92.02 has no meaning in itself – some meaning may stand in market capitalization (the global value of the business) that is for GE near $281 bil and for CAT around $56 bil
  3. the value is continuously fluctuating and there is no limit to gains and primarily to losses
  4. always consider percentage variations and not absolute ones

The market is composed by thousand, millions of individuals that consider correct buy or sell every particular instrument at the current price: none is right and none is wrong, anyone is just acting following his own evaluations and attitudes and expectations.

Always invest or trade into very liquid instruments, being “liquidity” measured by the price spread. Every instrument in every single moment has a buy price and a sell price: the difference is the spread and the higher the spread the less liquid is the instrument. So, do not invest in non liquid instruments.

Cut losses and let your profit run: this is the most widely confirmed Wall street adage and money management rule and its really true, mostly for the first part – always cut your losses before they eat up your capital. You can easily recover 2%, 3% or even 5% losses, but not a 20% or more loss.

Never buy a stock because you read a positive note on a newspaper or because its name is sounding or because the logo is graphically beautiful. Finance is about numbers, just that. Always make your homework before a trading decision.

There are two main classical approaches to market analysis: fundamental analysis and technical analysis.

Fundamental analysis looks at the value of a business in terms of capital, revenues, profits and so on. Technical analysis looks at the value of a business in terms of the chart of the price, considering that price encapsulate every possible (even hidden) information available.

Both the approaches have a good side and a bad one: I’m not here to judge what’s better, but I may say that if you want to invest long term some fundamentals are better to be taken in account, and if you want to speculate short term some charting tools can be indispensable.

About fundamental analysis, you may read Benjamin Graham and Warren Buffett manuals, among others, widely available in bookstores. I did find very useful an old book “The Zulu Principle” by Jim Slater.
About technical analysis, the basic author is Martin Pring; many others authors are available and one principal magazine at traders.com offers a continuous update on the topic.

A third way is rising in latest years and it is Artificial Intelligence applied to the markets (it is the main topic of this website!) that offers the possibility to bypass either fundamental or technical analysis with totally different instruments. Many academic papers on this topic, but  it is still a frontier activity, open to research and innovation.

A final word: never ever blame someone else for your losses. Never. Always put yourself into the conditions that you are the real unique responsible for your choices.

 

upcoming: how to choose your trading platform

 

 

Posted by Luca in educational, free, 1 comment

Market prediction can be risky business

I love risky business… 😉
It’s a pleasure to read these recurrent articles about forecasting, innit?

Financially Speaking John Spoto, Dec 2, 2016

Every year investment companies and forecasting firms dedicate enormous sums pitching their prognostications to investors, and it’s easy to understand why: the payoff can be huge.

For brokerage houses and their sales representatives, it is a proven strategy for attracting uninformed investors looking to earn superior returns with minimal risk.

Unsurprisingly, the most ardent defenders of forecasting stock prices are those who make their living from it, including investment firms and financial news outlets. Most academic economists, on the other hand, are skeptical that any forecasting model—even the most sophisticated—can predict turning points in the markets.

An overwhelming amount of evidence gathered over the last 80 years supports their position. A groundbreaking report titled Can Stock Market Forecasters Forecast? published in 1933 by Alfred Cowles III, an economist and founder of the Cowles Commission at Yale University, concluded, after thorough analysis, that it was “doubtful.” Since its publication, I am not aware of one credible report contradicting Cowles’ findings. Rather, several provide corroboration.

A 2012 study conducted by the Vanguard Group applied over a dozen different metrics (e.g. price to earnings ratios, dividend yield, etc.) to past stock returns for the period between 1935 and 2012. The goal was to identify reliable signals that might provide guidance for future performance.

The researchers concluded that forecasting stock returns is essentially impossible in the short term. In other words, we simply have no way of predicting which way or by how much stocks will move over the next few days, weeks or months. Furthermore, the researchers determined that even over longer time horizons of 10 years or more, many metrics assumed to have predictive value, in fact, had little to none.

In a 2015 article, Robert Shiller, Yale professor, and 2013 Nobel Laureate, wrote that after searching the news archives about the country’s major recessions beginning in 1920, he “found virtually no warning from economists of a severe crisis. Instead, the newspapers emphasized the views of business executives or politicians, who tended to be optimistic.

The almost-universally-unanticipated 2008 collapse of our country’s financial system offers a prime example. No model, including those developed at the world’s most elite institutions including the United States Federal Reserve Bank, foresaw a collapse until it occurred. Most were projecting continued GDP growth and rising asset values into 2009.

If we can guide rockets into outer space and back to earth with precision, why can’t some of the world’s smartest people using the most sophisticated technology develop reliable market forecasts? An explanation that has gained widespread acceptance is that current models are doomed to fail because they are vast simplifications of reality and cannot capture the interaction of forces that drive the markets. Instead, they rely on the conventional economic theory that assumes that the financial markets are made up of players who make decisions to buy and sell in a logical and predictable fashion.

In 2000 and then again in 2008, investors worldwide witnessed firsthand the gap between theory and reality: in the real world, things get chaotic. When this happens, investors—swept up in the euphoria or panic of the moment—abandon logic and behave unpredictably.

Next week, we’ll talk about a fundamentally new way of thinking about the financial markets.

Spoto is the founder of Sentry Financial Planning in Andover and Danvers.
visit www.sentryfinancialplanning.com.

 

Posted by Luca in educational, free, 0 comments

Trading opinions

Every trader and investor has her/his own framework of opinions that pilot the triggers. It is a mix of experience, knowledge and emotions. As your decisions are worth a gain, you have an euphorical sensation that you are mastering the forces that drive the market, but on the other side if your decisions take you on the losing side, you are bound toward depressions and your trading decisions gets worser and worser.

Every trader or investor has passed through these two extremes of the maniac-depressive syndrome and it is crucially importante to learn to manage its effects.

First, never blame someone else for your faults. Try to recognize your errors and learn to manage your money with realistic expectations. We need to study, not just install a charting software. But there is always a weak point in the process and it is our opinions. Opinions are strictly tied with sentiments and none of us is able to separate the actual objective facts from our perception of them, and this is inevitable.

As traders or investors, we need  tools that help us stay away from emotions and from opinions. It may seem strange, but the less opinions you have, the better trading decisions you take. I have learned it developing the artificial intelligence model that powers the forecasts: you do not need to have opinions to make good trading decisions – more, it’s better you do not have opinions at all. No opinions, no stress. No stress, better trading decisions.

Technical analysis is based on opinions, Elliott’s wave theory is based on opinions, Gann’s theory is based on opinions, even fundamental analysis is based on opinions: all these instruments takes your emotions out of control, sooner or later.

Technical analysis, in its various forms, can be very useful: it may provide you with valuable information and can trigger signals in quite an objective way, but only if you use it inside a wider framework that provides you with a deeper reading of the market. Otherwise, it just will take your emotional side out of control.

Having a tool that shows how the market will act in near future is a powerful opinion deleter. No tool is perfect, of course, but if you trade with an unbiased vision of the future, your decisions are free from emotions and your rational expectation are stress free. This is the real and objective power that rises from artificial intelligence applied to trading or investing.

 

Posted by Luca in a.i., educational, free, selected primer, 2 comments

New attitude for new market

It is almost one year that the spxbot.com site is on and three and a half years since I begun developing the model. Well, many previous experiences have built the necessary skills, but this is the timing.  No, it’s not time to draw conclusions, the work is still going on – will it ever last? –  as I’m now developing a new weekly model, pretty different from the one that is active at the moment, so to have not one, but two readings  and a better vision of the market.

Snooping around I see a lot of bearish attitude and I remember that about four years ago I was very bearish and the market was continuously rising. My incapacity to be well tuned was obvious. The results of the model did surprise me: I have to be sincere, I wouldn’t have bet a dime on its success – market is unpredictable is the mantra we have grown with and it is difficult to reset the way we think.

Technical analysis is almost unuseful, otherwise it would be plenty of millionaires around. Maybe you know, 95% of market private traders lose the capital and the shirt in 12/18 months and they usually trust technical analysis tools. I’ve been subscribed to “T. A. of Stocks and Commodities” for years and it gives you a lot of ideas and strength and good attitude, but then I realized that digital technical analysis is about half a century old and it must have been outmoded. Really do you think that with a line of data and a bunch of indicators you can get rich?

We need instruments to manage market noise and dig inside complex ever changing relations, as society itself is deeply changing, now faster than ever. We need an indipendent view on the market, abstract and unbiased, opposite of the continuously manipulated  information we are subject.

PS: Years ago, I used to think that market is where opinions are transformed in profit (or more often, in losses). Now I do not let my opinions hinder my investments, as the model is so much smarter than me.

 

Posted by Luca in a.i., educational, free, selected primer, 1 comment

Questions from a new subscriber

A new subscriber posed some questions that may be of general interest. Thank you for asking, here the answers:

  • Are the signals based on what the model thinks will happen after 6 bars/hours or the full 24?
    All the signals, except the bars projected into the future, are reading of the status of the market NOW. 
  • I see that some of your signals have minus signs (-) after them.  What does that indicate?
    All numeric outputs are just numbers without any other hidden meaning. That “-” is probably a typographic error and I will revise the code a.s.a.p.
  • Why does a “+0.800 -” signal mean “open long” sometimes and “reaching bottom” others?  What does the latter mean position-wise?
    Please, get aware that the Signal and the Position indicators are separate and different. They read tops and bottoms in two different ways and should be in accord, but often they are not.
    If you refer to my comments instead, well my comments are just a way to make the reading of the numbers as simple as possible, but that is just my opinion and is worth almost nothing.
  • Why does a “0.000 -” signal sometimes mean “open long”?  The signals tutorial page states that a +1.0 value is required to open a long.
    Same as before, plus a further note: I observed that when good signals for opening positions (either long or short) appears, they are supported by all indicators or at least three out of four. The system is trained to fire an alert and then the signal, so you should have two bars warning before the actual buy/sell action to take place.
  • When you advise us to open a position, should we close it after the first 6 bars/hours or keep it open until the next forecast becomes available?
    First: all bars represent one day in daily charts, no hours. The model is trained to stay in position for as many days as the position is profitable. Better an example: last signal of opening position on daily time frame was on 9/14 opening at 2128. This position, even if with some uncertainty, has been supported by more positive signals (green triangles and rising Stops). I consider the long position in place at the moment, even if yesterday the Position indicator fired a close status. What the system is telling us today is that we may have a Target at 2186, but as the market is moving toward that value, the Target may change (the system is adaptive) and the evolution of the Target is an interesting reading.
  • Does “(close) flat” mean that I should close my open position, or that the market will be flat at the close of the next session (i.e. 24 bars later)?
    The “(close) flat” position means that the model sees the more profitable position in the market as staying out of the market. Again, bars (either past or future) are not hours, are DAYS. 
  • Does the 24th bar always relate to the final hour of the US session (i.e. 3-4pm ET)?  Or, does it depend on what time the forecast was released?
    24th bar in the future is about one trading month ahead (as a trading month hs 21 or 22 days usually)
    I have chosen the number 24 for future bars because it fits well in all three time frames of my forecast: it’s about one month ahead in daily charts, six months in weekly charts and two full years in monthly charts.
  • What’s the best indicator of whether the market will be up or down at the end of the next US session (e.g. the signal, the target, or the 24th bar’s closing value)?
    The projection of next bar is the bar that superimposes on the magenta vertical strip. The magenta strip is “next day” i.e. the day after last historical bar. You will notice that this preview is more precise as high/low than the actual close. Also, as the future is often coming in a bit faster that the forecast can preview, the market has the tendency to anticipate the following bar(s). This is really clear if you look at yesterday’s forecast, where market moved to the target of the second bar. This is typical of impulsive market, while during choppiness it is quite common that market close goes opposite of the forecast.

 

Posted by Luca in educational, free, model insights, 1 comment

Bifurcation

lm_3-4Bifurcation is a market behavior that you get aware of when deeply analyzing it. I means that almost identical condition may produce opposite  exit direction. Today is one of those days. You may say it’s easy to preview, as Yellen speaks and her market manipulation is absolute. Yes, but the model doesn’t know of  Yellen’s discourse or any other mundane events. It’s just aware of prices of markets around the world and it was predicting a very special and volatile day for today since many days and that we may exit volatility in either directions, just due to very small bias differences.

What does this tell us about the market? It explains that the market (the time-price structure) has a hidden complex ever changing structure that some instruments (such as Artificial Intelligence) may uncover, maybe not completely. but with enough comprehension to result proficient. These instruments are the frontier of market analysis these days, and if do not approach them you will remain in the herd, that is routinely sheared.

 

Posted by Luca in a.i., educational, free, model insights, 1 comment

Responsive and adaptive

spx-da-am-20160524-225903-36d5e0f8-d5d7-42f3-b877-9fb9a71da157-3500-24

Forecast charts from May 05, 2016

The forecast charts are the output of the Amodel. All the work, all the code, all the information that is produced here it is put in there, in the chart. The model is designed to be adaptive and responsive, so that it adapts to (chaotic) ever changing markets.

Under specific circumstances, let’s say today, it outputs a response pattern that delineates how the market will behave in the future. When the the model is in its optimal “viewing” conditions, the pattern flows, for some time and the wave of the future flows though the present in synchronicity, then sometimes completes and sometimes, after some bars, changes and start develop a different pattern (that may be a totally different view of the market or just an expansion or contraction of something similar to the previous forecasted pattern).

The code that parse the model is in real time: every time it fires, it is totally unaware of what it did yesterday or the day before and on. It looks at the situation right now and produces the opportune output.

Under normal working conditions, the Amodel, as the final part of the wave is performing, stabilizes the output and you have some more bars to get confirmations of the imminent top or bottom.

 

Posted by Luca in a.i., educational, free, model insights, selected primer, 0 comments

Brute Force

[W]hen I write here, I usually have in mind an investor, as a reader. Averagely, a professional with a certain wealth, that uses markets to park money with an interesting rate of return. There are a lot of available techniques that let you shape an investment idea and then you have to trigger decisions and operate. The return tends to differ wildly from your expectations. How many parameters does your analysis involve?

If you are a trader, not an investor, you have a quote monitor alive and watch the market on very short time frames, and your chart is sided with technical analysis indicators. Once I read somewhere that 95% of traders exhaust their capital in 12-18 months. How many parameters does your analysis involve?

The A model that powers this site, on daily base, has 81 inputs, at the moment, that range from stock markets around the world to commodities, from rates to forex and more. The weekly base model has 199 inputs, because some econometric data is added.

Well, it’s quite a large matrix. Dozens of columns and thousands of lines. Yes, the A model builds a very large set of past experiences that drive the forecasting process and model future market behavior.  All the sets of experiences (daily, weekly and monthly) are either code ordered and manually  configured, to obtain a mix of automatic and empirical output. Every single input is evaluated by the neural networks and contributes to the building of the output.

 

Posted by Luca in educational, free, model insights, 0 comments