10% above Chaos: trading and trading tools
written by Sergey Tarassov
I have started to write this article almost two years ago. A question that I receive quite often from different people was the cause of writing it. I have received that same question today, again. I guess it is the last drop needed to make me completing this article. The question is about market forecasting and Timing Solution software.
In brief, when people see claims that some software tries to forecast the market movements, they expect it (the software) to be a kind of magic wand. Logically, they ask me to prove that my software really has these magic abilities. They even want to try it themselves, for a reasonable price. They only do not understand why I sell it instead of keeping to myself and making all money in the world for myself...
I understand their worries - as well as their basic desire. There are enough merchants on this market claiming exactly these features of their products - high percentage of successful forecasts, stories of huge profits made only by their methods.
However, to me it reveals a true problem that really is present on today's market of software/services for traders. It relates to the software that provides a/forecast for different financial instruments. It is a huge discrepancy between promises and expectations and the real profitability or forecast abilities of the software, Every time when I see a claim of 80% accuracy of the forecast provided by some service, it reminds me what I have read about unregulated pharmacy market in US a hundred years ago: at that time, you could buy an elixir of eternal youth, almost at any drugstore, and for the affordable price (or for not so affordable price at some places). When there is no strict formal (math) criteria, it is hard to estimate these 80%, so anything can be promised.
In context of all that, Timing Solution is a totally different software based on a totally different business idea. We do a research, then we provide models based on that research, and we apply very strict math criteria to estimate the accuracy of our models. You will not find on our website promises of 80%. The typical forecast ability of models that we have researched is 10%, i.e. our models can explain about 10% of stock market movements. This is an average value: there are time periods when these models work much better, sometimes they can be worse. And believe me, it is a hard work to take just one percent from Chaos, it does not come by itself, I have to fight for it. It takes a lot of knowledge and practically all my time. Forecasting 10% above the average - this is what we do, with our main product, Timing Solution models.
Is it enough - 10% - or not enough? Is it possible to get some practical use of it?
I see the situation this way. First of all, as a trader you should settle your personal relation with the stock market reality, one by one, face to face. Do not try to avoid this meeting applying some ready-for-use technologies, software programs, trading plans, etc. This meting should take place one by one, only you and stock market, nothing between. It is like a human being meeting his/her own death or love. You should understand at this point that, whenever you have to make a trading decision, it is you yourself who does it, and nobody will help you then. You may have a lot of advice; however, any advice may or may not work for you personally. I guess, when you lose your own money, all documented records of somebody else's success will not give you enough satisfaction, though you have used the same methods. You should learn how to swim in the Stock Market Ocean (i.e. how to take money out of it, more money than you put in) without any external help. It seems to me that quite many people spend a lot of money buying very/irrational/stupidly expensive books/courses trying to find some support where there is no support actually. This is business based on human worries, on your worries. Do not forget that. You are a warrior on enemy territory; you may find friends there and some help, though everybody there wants to take money from you firsthand - the stock market, brokerages, software vendors ...
Right after that meeting took place, i.e. you have settled your personal relationship with the stock market reality - you are ready for the next step which is applying more advanced techniques.
I believe the success in trading is made of:
80% - your personal characteristics and your personal experience; it includes your background, your education, your personality, your ability to accept the situation, your reaction on different price events, your knowledge of fundamental factors, This is very personal, and the same trading plan can work for your friend and do not work for you;
10-15% - additional techniques (like those that Timing Solution software provides);
and 10-5% - the grace of Fortune.
That is why the business model of Timing Solution software is totally different. We apply a true scientific approach to models that we provide. It means:
- Practically all our models are open, i.e. we explain to our users how the models were created. A trader should understand what he/she does;
- We are very concerned in regards to verification our models;
- Our users should see the whole picture; i.e. they have a right to know when our models work and when our forecast has failed. This info (positive and negative as well) helps us to modify our models due to new market conditions. Models that are working all the time are very suspicious.
So, before buying any software, you need to ask yourself what you would like to achieve, what your goal is. If it is just about making sure that the software does what it claims, - I guess I have answered this question. If it is about becoming a successful trader while using some software (as an example, Timing Solution), I would say it is a two-sided process. From the user's side, some efforts are needed such as: understanding a stock market reality and applying common sense that does not leave a room for any illusion. And from the software vendors' side: careful verification of proposed tools, no matter how many hopes and illusions may be destroyed by that. Everybody should do its part.
As to those 10% in the title - it is our product, it is what we can do.
Now, I would like to add some notes here. Among Timing Solution users, at least half of them are full time traders (it is based on a survey that I did 3 years ago), Many of them are in contact with me. And I am always surprised how individual are their trading styles. I simply have no receipt to share; hey - this is very individual! Just several observations of successful traders:
- They are comfortable with risk. Risk for them is not something negative, which is opposite to "normal state"; risk for them is a normal environment. There are some pilots among TS users. One person says that he is happy when he is in the sea and there is a storm coming...
- They are very careful in regards to the Internet information. Internet is a source of information, and at the same time, the Internet information can magnify fears - you do not need that.
- I don't know any successful trader who applies a technique that he/she does not understand. You should clearly understand what you are doing.
Of course, this "Portrait of a Trader" is not completed. You may continue these notes. (I would appreciate if you share with me.)
In this article I spoke about formal techniques in Timing Solution, projection lines mostly. If we have a projection line, we can apply statistical math criteria to estimate the forecast ability of the model that has provided that projection line. However, there are a lot of other non formal techniques, the techniques for which we cannot apply formal math criteria. I mean different charting tools that available in Timing Solution - like Andrews pitchfork, Gann fans, Fibonacci levels etc. I tend to consider these techniques as tools that allow to reveal/make more understandable/make more obvious the stock market geometry; and this perception is very individual, I am always surprised how it is individual. In the beginning, I have tried to find the formal criteria for verification of the charting tools; later I've decided to leave them as they are. They are not a subject of formal math logic, this is question of psychology - how a human brain tries to reveal some order, some harmony from the Chaos. Some techniques cannot be explained and verified in terms of formal mathematics (as it is now, at least), however they may be useful. We simply should accept this fact - "There are more things in heaven and earth, Horatio" Shakespeare.
Anyway, I wish you a happy trade!
August 11, 2013