Prediction Wizard

As we mentioned  in the “Learning Center” material,  the predictor system can be used in unlimited ways to increase the performance of  different traders.

Someone with very little experience and self-confidence might prefer to build a strategy that relies more on the predictor.

A highly professional trader  would use the predictor system to increase the bottom line performance results with the added “edge” from the predictor system.

Today’s market  is  fast.  Changes can occur very quickly.

Considering trading the Index – related ultra funds,  those that change  2% or even 3%, when the underlying index moves only 1% might present situations, when the  price levels change 0.5 – 1%  within  a short period of 10 – 20 seconds.

Without  a lot of experience and preparation  the trader  will not be able to  win this game of trading.

We must have a strategy in place for all trading situations, that we willing to play and  must be able to make decisions  about our trading often  within a matter of 2 – 3 seconds, if not sooner.

It is possible only with a predefined strategy, a lot of preparation and  focus during trading hours.

To demonstrate the reliance on the predictor system we present two process examples, that we use  in our everyday trading.

The following flowchart  is  basically a decision mechanism about overnight  trading.

It is heavily reliant on the predictor system.

We marked those areas, where we rely on the predictor data with green colors.

In this case  the completely mechanical decision   is made on the predictor output data.

It  is the conservative version, as  we open overnight position only If  Both the Daily predictor and the Omega predictor points into the same direction.  (Less conservative strategy is to open the position  without waiting for the Omega – prediction results sometime between 3.30 – 4.00 PM ET, and  If the Omega prediction points to different direction than either close part or all of that  position, depending on market conditions.)

Execution of this process / strategy needs  little experience. 

The next example is a decision-making process  during  intraday trading, assuming that we are intuitive Day-Traders:

It  is much less dependent on the predictor system, but  ideally  requires a lot of Day-Trading experience to be consistently  profitable.

We marked the predictor – related  segments of this process with green colors.

The intuitive Day-Trader can  use the predictor system to  align his / her Day trades only  in the direction of the predictor data or can  use it to adjust /. Modify his / her trading size, depending on  the direction of the market (Using increased size in case the market direction is aligned with the  predicted direction.)

Warning!  Just because we have  a  great predictor system,  the first priority in our Day-Trading decision making process is  the actual data coming from the Real – Time market behavior, and  we must use the predictor data with a bit less priority / weight in our decision making process. (Sometimes we make exception only during the first 10 – 60 minutes of the market day, when we still do not have enough information to  judge market  direction potentials with high reliability.)

We marked three areas in this flowchart with yellow colors.

Those that are  require a lot of attention, and  a lot of market / trading experience.

These areas, marked with yellow color makes  the differences between the newbie, the novice trader and the real pro trader. The other areas of  this flowchart  represent mechanical  procedures, that  most traders can define and  execute correctly.

There are  many  market shifts a Day-trader might encounter during the day.

As the day unfolds, a trending market might shift to a range market or a range market might shift to a trending market or  an up-trending / down-trending market might completely  reverse to a down-trending / up-trending market, a  high volatility market might shift to a low volatility market…

For this reason  we must go back to the top and reassess the market condition just before we make our trades.

A bad example is the following:  Assume, that a  trader correctly identifies a range market, but  do not initiate trades, as the  price level is between the range extremes. At this point the trader makes the decision,  such that he / she waits for the market to come down to the lower range extreme, and  than open a long position.

30 minutes later the market  come down to his lower range extreme level, and he initiate the  Long trade.

The mistake was, that the trader did not reevaluated the market situation / status, and because of that he / she  did not realize, that the market shifted  from a range mode to a down-trending mode, and immediately broke down way below the position opening level.

The  conclusion is, that because of quick potential market shifts, we need to reevaluate the market condition just before our trading decision, and should  not rely on our  analysis, that  we made just 10 – 20 .. minutes before.

Though it looks simple, it is Not, to  make the distinction between Bullish / Up-trending / Bearish / Down-trending  and range markets.

There might be big differences between Bullish market, Bullish pattern and Bullish expectations or hopes, that never really turn out to be Bullish / Up-trending in our selected time-frame.

On the flowchart TF is our selected  trading Timeframe, (In our case it is the 5 Min timeframe)   but in addition to that we use one or more timeframes above that (60min, Daily, and often the 15 Min and 30 Min timeframes)  and some timeframe below the trading timeframes (3Min, 1Min, 15 seconds) to fine-tune the actual trade entry.

We note here that the question to include the daily predictions into the intraday trading decision-making process might be concluded  within the first 10 – 90 minutes after market open,  sometimes as soon as in   the first 5 – 10 minutes, but most often within the first 30 – 45 minutes.   (If the market gaps again the predicted direction and continue to move strongly again the predicted direction.)

The above flowcharts are only for demonstration purpose, that we use for Day-trading.  Every pro-trader have either explicit or implicit trading strategy  that could be depicted with a flowchart.

Some of the reasons that we need to have something like that available either explicitly or implicitly. (If a trading strategy described in other form it  fulfills similar purpose.)

-  Improve response time for the market moves.

-  Be able to see how we are doing our job.

-  Be able to find  areas, that need to be improved,  adjusted to  have better

   overall results.

-  Be able to identify our weaknesses and strength during trading

The sample  trading flowcharts  presented only  part of the complete market participation process, as this is only about position opening.

Similar strategy, flowcharts could be created about  position management / portfolio management,  and  exit strategies

The optimal position entry (Optimized to the minute or seconds) is crucial for a scalper or Day – trader, but much less important for  the swing trader or investor.

Some conclusions:

To be successful on the market in trading, the  market participant Must be able to improve constantly.

The market participant must be  quick in the decision making, especially if  the decision is about cutting losses, and sometimes might need to be slow / patient, if the time is about letting the profits run.

The market participant must be able to adopt to market conditions, so the market status must be reevaluated periodically, and  the trader should not be locked into a  previously  created  view / conclusion about the market status.

To be able to improve   the trader must have market participation data (trading data) and possibly market participant data (Mental state…) available.

The feedback loop of the learning process / trader improvement  closed if we analyze our trading performance,  compare to the   potentials of the strategy, played, and  constantly  try to  find  areas  to work on.