Market Timing Theory, Tools and Methods

Raymond Raud

July, 1997

Forecasting Topics Trading Markets Modeling with Neural Networks Knowledge in Price Data

The only way to profit on an ideal market is to have a crystal ball to see the upcoming external events that influence the market. The real markets are not ideal, they follow their own trading pattern, over-react to the external events thus create differences between the actual value of the goods and the price. That is the source for trading profits. The tools and methods capture these differences. Understandably, traders learn from the experience and improve their performance. Trading patterns change and methods that worked before do not work any more.

Numerous methods and tools have been invented for market timing. They have probably worked fine for their authors. The market is constantly improving and eliminating one inefficiency after another, thus rendering yesterdays methods useless. Often the authors are cashing in another round by selling the tools. That is what appears to be the winning strategy on market timing tools and methods business:
- Develop your method or tool and use until it works
- Save account statements to prove the profits
- Publish ands sell the tools/methods using account statements from previous step.

Probably good business, wouldn't you do the same? Constant adjustment to the current trading patterns and learning must be a required characteristics of any successful method. Unfortunately, I have not found many with this characteristic. The exception are various tools claiming to use some form of neural network as the forecasting core. Neural networks are structurally quite simple programs. Since I am a reasonably good programmer, I built them myself for experiments instead of using a shrink-wrapped product.

Below I'll give brief comments on some of the tools/methods I have tried. Note, that this is my personal experience which should not be interpreted as comprehensive test or evaluation. May be I am just not smart enough to discover their great value. You should consult Futures Truth (or other similar service) for objective evaluation of results.

The Delta Phenomenon. I was unable to discover the value of this phenomenon for forecasting. Knowing the pattern that you are looking for and considering the freedom of pattern interpretation allowed it is not complicated to identify the patterns on historical charts. the same freedom of interpretation renders the Delta Phenomenon useless for identifying short commodity market moves.
Real-time Futures Trading, Al. Gietzen
Agricultural Options, G.Angell
Detecting High Profit Day Trades in the Futures Markets

I welcome questions and discussion on any of my conclusions and assumptions.
Please drop me an e-mail, thank you.
Raymond Raud