"WOW – That's It"

The goal of True Reckoning is to help traders isolate which specific market turns have a higher probability of becoming new, tradable trends.

The challenge with Momentum indicators

Though Momentum indicators can be used to identify new tradable trends, their challenge is that they cannot identify a new trend until that trend is well formed and has run significantly.

This is so because the increased momentum of a new trend can only be measured after an initial reading of momentum has been taken in the direction of the new trend.

This is the basic flaw of looking for increased momentum.  In order to have increased momentum you must first have momentum to compare it to.

In the real trading world, where time is money, by the time increased momentum is realized the trend is already well on its way.

Thus, though increasing momentum does a good job of confirming a trend, it does not do a good job of providing timely entry signals.

To counter this lagging deficiency, some traders look for trends to end by measuring decreasing momentum.

Using decreasing momentum to infer when a trade may be ending is a very handy method, but it also has core flaws.

Specifically, no matter how much momentum has drained from a move, no matter how ‘tired’ a trend is, in today’s electronic markets, where massive explosions of bots can be fired off, which they themselves excite and fire off other bots, all within 24 milliseconds, any ‘dying’ trend can instantly regain new life.

Hence decreasing momentum, though a handy tool in an earlier market age, and still at times viable today, can only tell you what happened.  It cannot tell you what is about to happen.

‘True Reckoning’ changes all momentum indicator’s inherent ‘lagging’ dilemma

True Reckoning eliminates the lagging nature of momentum indicators by doing a couple of things really, really well.

First, True Reckoning looks at more data than the typical Open, High, Low, Close data that a classic momentum indicator does.

True Reckoning analyzes each and every transaction in a particular market (not just the Open, High, Low, and Close of every bar).

True Reckoning also uses an advanced, proprietary ‘noise-to-signal’ filter algorithm tuned specifically for the unique market data that is generated by electronic markets.  This ‘noise-to-signal’ filter reduces the amount of ‘clutter and chatter’ in the market data that it processes and leaves a cleaner stream of information with which to analyze.

Once the market data is scrubbed by the ‘noise-to-signal’ filter, True Reckoning leverages a recursive data processing approach to hunt specifically for, and identify, a probable data ‘footprint’ that is unique to a significant portion of new trends.

When these new trend footprints are identified signal is surfaced.

True Reckoning was developed by Algo Futures’ Lab and is distributed exclusively via …sceeto.

The people who build the stoves are getting their fingers burned…

The cobbler’s children have no shoes.

BATS goes Batty:

http://www.businessweek.com/articles/2012-03-23/the-bats-affair-when-machines-humiliate-their-masters

The software business is terribly complex.  Add managing massive amounts of real-time market data to the mix, and you are in an environment where good management controls of the software development life cycle, which includes a massive amount of very expensive and time consuming testing is essential.

Seems like the folks at BATS are not going to get any ‘Software Developers of the Year’ awards.

I know a guy who has had 58 profitable trading days out of the last 60 trading days.

His greatest strengths, IMHO, is that he:

1. Has a distinct and explicit trading methodology that is tuned specifically for his personality.

2. Every day, prior to the open, he games out all ‘what-if’ scenarios so that he isprepared in advance, with a plan for all eventualities that may arise during the trading day.

3. Immediately after the close, he does a re-cap of the day’s events and begins prognosticating the next day. I am sure that when he sleeps at night, this market re-cap is ruminating around in his subconscious mind growing more mature – thereby better enabling the ‘what-if’ analysis he does the next morning.

In order for anyone to do these things consistently, they need:

1. A love of the game.
2. Discipline.
3. An eager and open mind.

All in all, it is a lot of work.

It is not a fly by the seat of the pants job.

But if you hone your craft, you can do very, very well in this industry, make your own hours (which are likely as long or longer than other jobs), and not have a boss (except for The Market, which is always The Boss).

…and yes, this trader, uses …sceeto.