Algorithmic Trading With I Know First Introduction Packet


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- About I Know First
- How To Read The Prediction
• Signal
• Predictability Indicator
- Sample Top 10 Algorithmic Forecast & Corresponding Returns
- Example Analysis of Tesla (TSLA) By An I Know First
- Research Analyst How To Recognize Overall Market Trends
- Algorithmic Trading Strategies

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Algorithmic Trading With I Know First Introduction Packet

  1. 1. Algorithmic Trading With Introduction Packet
  2. 2. Contents About I Know First How To Read The Prediction • Signal • Predictability Indicator Sample Top 10 Algorithmic Forecast & Corresponding Returns Example Analysis of Tesla (TSLA) By An I Know First Research Analyst How To Recognize Overall Market Trends Algorithmic Trading Strategies
  3. 3. About I Know First I Know First is a financial services start-up that utilizes an advanced self- learning algorithm to analyze, model and predict the stock market. Co-Founder Dr. Lipa Roitman, a scientist with over 20 years of experience created the market prediction system. The algorithm is based on artificial intelligence, machine learning and incorporates elements of artificial neural networks as well as genetic algorithms to model and predict the flow of money between 1,400 markets from 3-days to a year: stocks, ETF's, world indices, gold, currencies, interest rates, and commodities. It separates the predictable part from stochastic (random) noise and then creates a model that projects the future trajectory of the given market in the multi-dimensional space of other markets. The algorithm outputs a predicted trend as a number, which in turn, is used by traders to identify when to enter and exit the market. While forecasts can be used for intra-day trading, the predictability tends to become stronger over longer time-horizons such as the 1-month, 3-month and 1-year forecasts.
  4. 4. How To Read a Prediction In each algorithmic forecast, there is the signal and the predictability indicator. The signal is the number in the middle of the box (flush right). The predictability is the number at the bottom of the box. At the top, a specific asset is identified. This format is consistent whether you are receiving the Top 10 Stock Predictions + S&P Forecast or the Top 10 Commodities Forecast or any other I Know First prediction for that matter. This algorithmic forecast for Tesla was made on May 12th 2014. Within the predicted time horizon (time frame), TSLA shares gained 4.59% in accordance with the algorithmic forecast. Before making any trading decisions, consult the latest forecast as the algorithm constantly updates predictions daily. While the algorithm can be used for intra-day trading the predictability tends to become stronger with forecasts over longer time-horizons such as the 1-month, 3-month and 1-year forecasts. Signal: This indicator represents the predicted movement direction/trend; not a percentage or specific target price. The signal strength indicates how much the current price deviates from what the system considers an equilibrium or "fair" price. Analogy with a spring: The signal strength is how much the spring is stretched
  5. 5. The higher the tension the more it will move when the spring is released. The signal strength is the absolute value of the current prediction of the system. The signal can have a positive (predicted increase), or negative (predicted decline) indication. The heat map is arranged according to the signal strength with strongest up signals at the top, while down signals are at the bottom. The table colors are indicative of the signal. Green corresponds to the positive signal and red indicates a negative signal. A deeper color means a stronger signal and a lighter color equals a weaker signal. Predictability: This measures the importance of the signal. The predictability is the historical correlation between the prediction and the actual market movement for that particular market. For each asset this indicator is recalculated daily. Theoretically the predictability ranges from minus one to plus one. The higher this number is the more predictable the particular asset is. If you compare predictability for different time ranges, you'll find that the longer time ranges have higher predictability. This means that longer-range signals are more important and tend to be more accurate. * Stocks with the strongest signal and largest predictability are preferable. Signal and Predictability are independent indicators. While the signal gives the direction and the relative "scale" of the predicted move, the predictability indicator is related to the probability of that prediction to realize, which is based on the past performance of the corresponding predictor. Both of the parameters are important. The higher both are the better. It is recommended to consider both the signal strength and predictability.
  6. 6. Sample Top 10 Algorithmic Forecast & Corresponding Returns Below is a typical Top 10 Stocks Picks & S&P 500 Forecast in the 1-year time horizon with the correlating returns in a table to the right. A “✓”denotes a correct prediction while an “x” conveys that the stock did not move in the forecasted direction. There are multiple strategies that can be utilized with algorithmic forecasts that will help mitigate risk and enhance returns. All of which are recommended to be coupled with traditional forms of analysis. Forecasts can be customized to fit certain criteria such as being large cap, have a dividend, low volatility or a specific industry that best suits any investment strategy required.
  7. 7. Example Analysis of Tesla (TSLA) By An I Know First Research Analyst First and foremost, for any trading decisions use the most recent forecast. In general, the longer time range forecasts are more predictable than the shorter ones and they should be used to identify the main market trends. We recommend that for the first month of your subscription that you watch the system, learn it and become familiar with it before actually making trading decisions on accord with the daily forecasts. The first appearance of a stock in the top list does not mean you should buy it at any price that same day. Instead, put it in a watch list, unless you are getting it at a significant discount. We advise that you wait three to five days to get it at the better price. Try to get into the market at a discount of at least three percent when the market goes against the prediction intraday or in the next few days after the first appearance of the signal. Look for trends such as an increasing signal or predictability to gain more confidence in the prediction. To the left are the 1-month and 3-month forecasts of Tesla from May 7th – May 9th 2014. The algorithm indicates that shares will increase in value over these time horizons. These forecasts display an increasingly bullish forecast for Tesla. In the 3- month time horizon, Tesla has
  8. 8. 6.41, 8.32 & 28.55 signals for May 7th, 8th and 9th, respectively. As each forecast is color-coded, the algorithm indicates increased strength of the predicted movement in this forecast with a deeper green. Deeper greens and reds indicate more aggressive movement in the stock price and are directly related to the strength of the signal. However the predictability is not very strong in either the 1-month or the 3-month time horizon, meaning the algorithm is not very confident in this forecast. Algorithmic forecasts are intended to be utilized in conjunction with traditional forms of analysis in order to reduce risk and optimize returns.
  9. 9. How To Recognize Overall Market Trends Be sure to recognize the general color of the heat map as well as consider the forecasts for major indexes like the S&P or Dow Jones to get an overall picture of the market trend. We advise not to trade against the general market trend. Another tactic is when you look at specific stocks like Citigroup (C), is to review the specific industry forecasts such as the KBW Bank Index (BKX) as well to develop a better analysis. To get a strong indication of market volatility, the Volatility Index (VIX) forecast is an excellent indicator. If an asset you purchased is no longer in the Top 5, 10, 20 or 40 you can easily receive a customized forecast to continue tracking the asset. While reading your Top Stocks forecast, there are three specific indicators of how the general market will perform. The first is simply recognizing the forecast for the S&P 500. The second indicator in your Top Stocks forecast is the overall color of the entire forecast. When the entire forecast is primarily green, this should give more faith in the algorithmic predictions as well as express the general forecasted market environment. The final indicator is the bar across the top of the forecast, under the date. When you hover your mouse curser over each cell in this bar, it will show useful information such as how many assets have bullish signals. In this example, 37%, 34%, and 23% assets have bullish signals for the 1-month, 3- month, and 1-year time horizons, respectively. The other boxes give information such as the average signal, the previous percentage of stocks with a bullish signal, the average predictability and other useful information that will reveal the forecasted market environment.
  10. 10. Algorithmic Trading Strategies Strategy 1: Identify New Opportunities and Double-Check Your Analysis As you do your own analysis of companies, you can compare your assessment with that particular assets forecast. On the other hand, you can do the exact opposite by recognizing new market opportunities and then doing your own analysis of the assets that have strong signals and predictabilities. This strategy is a great way to check your analysis as well as recognize opportunities you would have otherwise missed. This is an excellent way to mitigate risk and optimize returns especially if your own analysis agrees with the forecast. If you specialize in a particular industry we recommend getting a forecast that identifies the best and worst companies in that industry such as our Best Tech Stocks forecast Strategy 2: Buy All Assets In The Forecast Of Equal Weights Another popular approach is to purchase all the assets of the forecast in equal weights. This strategy will help diversify your portfolio, ultimately reducing risk and augmenting returns. The I Know First Average Return reflects the return an investor will receive implementing this strategy. While not every recommended asset will follow the predicted movement, those that do not usually will not deviate tremendously and investors will benefit from the assets that do follow the prediction. The I Know First Live Portfolio is a great example of how this strategy has proven effective. The portfolio is based on the average return from the Top 10 Stocks + S&P 500 forecast in the 1-month time-horizon purchased on the first of each month, representing a buy and hold strategy. The portfolio returned 60.66% in 12 months beating the S&P 500 by over 30% in 2013.
  11. 11. Strategy 3: Buy Only Stocks With A Predictability Of .4 Or Higher This strategy is straightforward and very dependent on the predictability indicator. This indicator, which is unique to I Know First: Daily Market Forecast’s algorithm is the historical correlation between prediction and the actual movement of that particular asset. In other words, this measurement indicates how often the algorithm has been correct in the past. Generally a predictability of .2 and higher is considered very good but a predictability of .4 and higher is excellent. This strategy is somewhat limited in scope but can be a very reliable tactic. Strategy 4: Buy Stocks That Have A Strong Signal In Each Time Horizon Our fourth strategy is based on recognizing assets to reappear in each time horizon. When you see the same asset in your forecast appear in the 1- month, 3-month, and 1-year time horizons, this is good sign. The next step is to analyze the signal and predictability. You should look for a consistently strong signal and predictability in each time horizon. Generally you will see the predictability indicator increase in larger time-horizons, and this is sometimes the case with the signal as well. Strategy 5: Multiply the Signal And The Predictability Indicator Together This approach requires some basic math skills, specifically multiplication. When you multiply the signal and predictability, you basically create your own new indicator. This will allow you to easily compare the different assets in your forecast. The same rule applies, as the larger numbers will denote a stronger forecast.
  12. 12. Email us with any questions that you may have. We would be happy to help. Customized forecasts are available, including adding specifics such as large cap or small cap stocks, additional tickers, different assets including commodities, currencies, ETFs, world indices or any of the + 1,400 assets.