Prediction Wizard

A Market Participation Process Model.

In order to better understand our participation in the market  we created a Market Participation Schema, that is presented on the following   diagram:

What is our objective?

Our objective is to reach consistently higher and higher cumulative profit as a result of our market participation.

Can we control the market?

No, we can Not control the market, but we can control our market participation and with it the possible profit levels we can reach.

At the same time our impact on the market is dependent on our  capital, that we are using within a specific market,  and most of the time this impact is definitely negligible if we play the big indices as individual participants.

In our view this schema could be applied, no matter  that we are talking about completely automated systems or intuitive trading.

Obviously in the second case the market model, the trading model and the decision mechanism is  in the trader’s head, whereas in  case of a completely automated system it is implemented by computer algorithms.

(Actually  in case of  intuitive trading there is another feedback loop, as the Profit(t)  function might impact, distort  the market model, trading model and decision mechanism within the trader. That is why  some  suggest to trade like a robot,  to minimize the negative impacts from outside this closed loop.

Very rarely automated systems might also change their behavior depending on the Profit(t) function,  to optimize long-term results, for example by changing positions size as a function of  historical profit  function. Because of lover importance, we  showed this with dashed line.)

But these are only two extreme approaches  to play the market and unlimited  number of other hybrid  approach could be successfully implemented, when both  human and machine interact to generate the final piece  of the participation, the trading output.

In trading literature there are endless number of market models,  trading models,  decision mechanisms, data acquisition mechanisms, data preparation / preprocessing mechanisms

We do not intend to cover all possibilities  of the available systems.

In our  future blog entries we will focus mostly on universally applicable  information and let the readers  think and work on the  details that  might apply best to their own market participation using their selected time-frame, selected asset class / classes  and selected trading style.

Special focus will be on how to  increase further the success level  of  predictionwizard users in this market participation process.

We will have less focus on particularities and information that might be of interest only to very limited  number of  predictionwizard users.

The difficulty lies in the fact that this process is not a deterministic process, so no simple transfer function could be created.

We can’t make valid conclusions in a probabilistic process after one or two market participation, or trades.

Having optimal  process settings  today still might not be enough long – term,  as the process parameters  also change in time.

But after hundreds of  participation we should be able to identify some of the current process quality parameters.

This might seem complicated at first but it will not, as we try to simplify  our explanation and  try to summarize or make conclusion  after more detailed  descriptions.

You can consider this as a kind of list, that is needed to be able to successfully participate in the market.

As one example: You need Real-Time data. Obviously you may be able to put in trades without real time data, but that will not be optimal long term.

If you are a Day-Trader or scalper and the Real-Time data stops flowing  you will definitely feel the importance of that item in this process. You can make some interesting  experience just by closing your eyes, or shutting off  your monitor(s)  for 5 minutes and think of  market participation.