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atlus1432
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trader and Excel based software developer of risk management software
My company:
Fulcrum Shift Trading
My blog:
Fulcrum SHift Trading
  • Taking market forecasting to the next level and why the F-Shift Forecaster works so well for options traders 0 comments
    May 26, 2009 7:01 AM

    When I created the F-Shift Forecaster©, I realized that the true strength of this platform is in the weighting capabilities. I have written extensively about this dynamic at play and you can reference my blog archives if you wish to bring yourself up to speed on this topic. I did realize however, that one of the design shortfalls in the platform was its inability to immediately compare the differences between the 2 unique forecasts (weighted and non weighted). With the latest changes that are now incorporated, this problem has been addressed. When using the RANDbetween function within the platform by tapping the F9 key, both the weighting and non weighting forecasts are simultaneously updated. Graphically, both forecasts are plotted into a single chart comparing the following metrics;
    1)   Probability of a higher or lower value 12 periods from the assessment date
    2)   12 point RANDbetween probable outcome equity curve
    3)   Probable breakdown of range outcomes
     
    (click to view new screen shot)
     
    A Range forecaster now replaces the volatility forecaster. I made this decision strictly because of the unique challenges that are inherent within volatility pricing issues, those being the discrepancies that can exist between historical and implied volatility. Often times an expanding (HIGH-LOW) range can indicate either a reversal in the current trend or a continuation breakout after a trending market has taken a pause without reversal. Personally I call those types of technical patterns “ledges” where the market goes into a holding pattern at or near the top of a rally or at or near the bottom range of a sell off. The range forecaster operates in the exact similar fashion as the price forecaster. The data is populated with a “one click” macro and the entire F-Shift Forecaster© can now forecast not only a probable PRICE outcome but a probable daily PRICE RANGE outcome. In other words, you now have a statistically generated idea of where a stock may be over the next 12 periods but you also have a statistically probable idea as to whether or not the daily HIGH-LOW range will expand or contract over the same 12 periods. This is very powerful stuff if you know how to put all of these “clues” together with which to build a strategy around which is a great segue into the final and most powerful feature which has now been added.
    The OPTION RECOMENDATION window now crunches all the data used to forecast probable outcomes (price and daily price range) and then recommends a “best practice” or best course of action when modelling options strategies.
    Cosmetically, I substituted the pie charts for 3-D bar charts providing the visual “side by side” dynamic and I have moved the positioning of the spinner which controls the bias function. You can now find the bias spinner to the immediate left of the bias “checkbox”. Finally, when modeling daily price RANGES, the platform will alert you by highlighting 4 of the title bars in blue letting you know that you have switched from the straight price analysis to price range (HIGH-LOW).
    All the new changes have been highlighted within the embedded chart and are colour coordinated corresponding to the detailed legend to the right of screen shot.
    Business speak would sound something like “what is the value proposition of this platform” – normal speak would be more along the line of “so ...what exactly is this showing me”. The answer to both, regardless of how you phrase the question, is the ability to forecast the highest probable outcome over the next 12 periods (daily, weekly or monthly). If we have been in a strongly trending market, what are the probabilities that this will continue? With the weighting dynamic included, are there any current changes that should be considered and most importantly does the current weighting forecast confirm the non-weighted analysis? Does the platform reveal stark differences in the probable outcomes? If there are (stark contrasts), how do those differences affect a potential strategy you are or were considering? All these questions can now be answered with proper use of the F-Shift Forecaster©.
    Look for more an informative tutorial that I will post to the blog over the weekend on exactly how I have been successfully building trading strategies around the results and analysis generated when using the forecaster.
     
    Fulcrum Shift Trading
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