Tuesday, April 15, 2014

Weekly Inflection Influence Window (WIIW)

Last week’s market action was pretty bearish. Market kept on declining even in the face of several bullish developments including approaching  IPM model top date (Note: Market will rise into IPM top date, but will mark a lower high). As mentioned previously, this kind of behavior typically manifests near a trend change. We have seen such behavior in May 2011, Sept 2012, Sept 2008 and others.

Recent market movements have further strengthened the case of a trend  change, as 8/4 test was completed last week in major indices. This  means the trend has already changed. Although this trend change 
resulted in an IPM Trade Matrix’s losing trade, it was a very good  development as it allowed us to improve both IPM Trade Matrix and Inflection Point Model’s forecasting ability.

One of the biggest lessons learned was the identification of the  influence of Weekly IPM Turn window on Daily turn windows. Although we  knew about this behavior since 2011, it was very difficult to quantify  which weekly turn dates were influencing daily turns. As a result of  recent market action, UST team diligently searched the historical data library in conjunction with a plethora of indicators to identify key  weekly turns which influence daily IPM dates.

After exhaustive analysis, it appears that we have identified a key  metric which would highlight Weekly Inflection Influence Window (WIIW): Timeframe where weekly IPM turn windows will influence daily turns. This development will not only better prepare us for future  changes, it will also improve our trade ability i.e. we might be able  to enter short or long earlier than the regular turn dates to maximize  profits. Please note that these WIIW scenarios are seldom and do not influence 95% of the trades, but this information is very important  because it will help protect us against losses during WIIW.

Furthermore, we have improved IPM Trade Matrix’s entry & exit  criteria. Entry criteria enhancement will prevent early trade starts and will optimize profitability. While, exit criteria enhancement will  ensure risk is mitigated to conserve profits.

We hope that these enhancements will improve IPM Trade Matrix’s  accuracy from 95% to 99%, and will increase confidence among users.

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