2022 January 11, Tuesday
These questions were sent about the PatternCast “Quad Scan”. These answers specifically apply to the “Quad Scan,” and generally apply to other PatternCast scans, insofar as we understand them.
(1) Question: Does the PatternCast Signal give a simple, straight-forward “buy at the open” because PatternCast expects the market will rise from the open and close higher?
Answer: Each pattern seems to indicate properties for the next trading session. Our interpretation is “open to close.” The use of the word “expects,” adds a certain human quality to the equation, though, that we don’t use. There is no “expectation” by these algorithms because they are not psychic, have intuition, or are imbued with hope or fear.
The way we look at the algorithms’ output is historically-significant evidence that a statistically-likely set of parameters are probable. This is our best attempt at the moment to describe what PatternCast does.
Consider this, “If a pebble is dropped into a pond, can you predict how far, and where, the ripples will spread?” You could spend a lifetime on that question. PatternCast attempts to quantify what come before the pebble hits the water – the size of the pebble, the distance to the water’s surface, the wind speed and direction, the movement of the water below. The result is output that describes most-likely outcome scenarios.
(2) Question: Is there experience from prior signals the market will move down near the suggested entry point before the move up?
Answer: There is evidence and a great desire to find more. With our current testing the best results with these signals comes from an “at the open of the next session” approach, though.
We find net returns overall, and winning percent, favor a “wait to make a decision” for the open the next session. Yet, the difference we find for trades taken at the close of one session, or the open the next session, is slight enough that it could be statistical noise to assume the “at the open” scenario is best.
More testing should be done to explore this concept.
(3) Question: How significant is the suggested entry point?
Answer: The word “suggested,” needs to be defined. “Suggested,” is not used as in, “It is suggested you take vitamins for optimal health.” Rather, “suggested,” is used as in, “It is suggested – by data – that over the last 100 years, people who took vitamins got sick less often.” The distinction is, we don’t make suggestions for you to personally do anything, rather, the data (and, our interpretation of it) suggests statistically-relevant parameters to consider.
Thus, we now look at “suggested entry” prices in context: The “suggested entry” prices are based on filter sets we apply to the “raw” PatternCast signal. This is where we get the terms “raw signal” and “filtered signal.”
And, yes, we do find significance with “suggested entry” prices. We find higher win rates, larger returns, and smaller losses per trade. The tradeoff we find in the data is less trades triggered in our current understand of these signals.
The gross returns were larger with “raw signals,” and “at the open,” as they were created, but the more efficient trades we saw utilized “suggested entry” prices.
Either way, over time, we saw a move higher in the total returns. It seems to us the decision to take one at the open, or wait for an entry is personal, and, goes beyond the scope of PatternCast.
(4) Question: Does the market tend to gravitate down to these areas in the pre-market? Is there a futures opportunity to the downside before market open?
Answer: That is something we tested, but not enough to make a hard, definitive answer. We see some people who seem to have good results with pre-market, or overnight, trades – where they either sell into a buy, or buy into a sell. But, to be very, excruciatingly clear, there is no hard data we have to back those ideas.
If you have further questions, please email email@example.com. Thanks!