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Where Am I Now In The Project Development Scheme?  ubermunch 19:41:56 |
| | This should be a brief post. So far I have put together the basic skeleton of five indices to be used in the initial trial phase of my covenantal (i.e. biblical) trading strategy. I am working on these five indices:
1. Precious Metals Index
2. Energy Index
3. Money Valuation Index
4. Cost of Mercy Index
5. Cost of Justice Index
Each of these should in the end yield a single number which will estimate the specified "Index component" -- price of precious metals in ounces in 3 months, price of energy in three months (probably reckoned in PMI ounces, the price (value) of the USD compared to foreign currencies and the cost of money to US customers in dollars (This will then be converted to PMI ounces), The cost of mercy in PMI ounces, the cost of justice in PMI Ounces.
The last two will invoke statistics already in use to describe the cost of insuring different kinds of people in different countries -- perhaps police officers and others who work with criminals. The higher the estimates, the more danger to them insurance companies foresee. This way I can lean to the experts with the best statistical research without having to do it myself (directly). I will use other like social indicators also, combining them into an index which necessarily puts numbers to the costs, so that I can average them (hopefully 3 months out; or else 6 months out, or in the worst case scenario one year out).
I may be able to find a website which lists this information (crimes etc) in a moment by moment fashion. In any case, I intend to use the best information available and that which is most often available (closest to real time) I can find, or three months out (my preferred time frame for a short term forecast).
The end result should be 5 particular numbers which change with the markets showing the current estimate by the markets of what the cost of each of these will be in 3 months.
This will be my rough draft for a biblical model of market forecasting. A rough draft necessarily will need refining. As I learn more -- as the project proceeds (God willing) I will make the necessary changes (The point is to do what Mister Eastwood advised in a movie: adapt, improvise, overcome). Whatever changes I make as I proceed I will do my best to explain.
Together with the 5 numbers, I will probably display a sixth which averages the 5 into a single number so I can watch the 5 elements change in real time, and their average, to see the cause effect relationship their bear on the final quotient. This provides (putatively) an overview of the real market dynamics, those trends which actually move the markets, and their likely future counterparts (short term future counterparts).
The result is a 6 or 7 (I may add an index) panel of "judges" which tell me what to do with my money now to anticipate markets in 3 months or less. I can adjust the formula to collapse the time frame if I wish. And the trend indicates Point A (now) will head to point B (three months from now) identifying not necessarily a future price but a future trend. You can buy or sell into the trend long before the three month indicator specifies since the current price will have to reach the specified index point from where it sits now.
This is trend forecasting, not price forecasting. The future price specified would still be correct if the market "heads that way" and you buy the early trend. If you sell before it reaches the price specified 3 months out and you make money from the trend, it doesn't matter if the trend continues or not to reach the price specified or else falls short. The trend was still correctly named by the future price, which functions merely as a "target," suggesting which direction the market will turn and run.
If this does not make sense, try thinking of a compass. The future price names a place in the markets, as though one might say "Alaska" when asked which direction is North (when standing in California). If you head toward Alaska, you are moving approximately North. Even if you never make it all the way (walking), if one had said you would go North in advance by saying "He will head toward Alaska" (the 3-month out price number), the direction prediction would have been correct (profitable) for our purposes.
Which way will the market head? -- this is the question my indices propose to answer. They will do this by naming a price either higher or lower than the current price. I am not promising the price will be exactly reached, but hoping to see that the direction it indicates actually names the trends the markets follow. Once you put an automated trailing stop in behind a market trend, you can't lose if the trend continues for even a very short time. If the price prediction is incorrect because the trend keeps going, you win even bigger. If it is incorrect because the market turns around after moving only 3/4 the way up, you should still be able in most cases to make a hefty profit.
You do not need to be perfect in trading. You only need to outperform the competition.
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