Alternative Research

Alternative Research - Our research process is bi-directional. On one side we look at patterns and on the other side we develop analytics and work on systems. This dual approach helps us understand patterns of nature and markets and give them a workable form through systems. Trading and investment is a system driven approach which needs more than a pattern watching ability. All our analysts combine the patterns and analytics approach before they advise. Pattern watching involves Elliott waves, conventional technical analysis and sentiment analysis. While analytics approach is based on proprietary research models which are connected to a global database, are programmed and developed as web and offline applications.

Alternative Research is unconventional Research, which derives its strength from mathematics, statistics, cycles, understanding of mass psychology and other non conventional techniques like the study of charts and financial models. Though loosely grouped as Technical Analysis, some alternative research tools are subjects in themselves. These are the following tools which encompass alternative research.

Intermarket Analysis One of the most striking lessons of economics is that all markets are interrelated, financial and non-financial, domestic and international. The link is more conspicuous when contagions around equity market spread like fire in days. No market trades in a vacuum and this is even true for emerging markets. And even equities are influenced by various other asset classes like bonds and commodities. Bond prices are very much affected by the direction of commodity markets, which in turn depend on the U.S. dollar. As a result, the concept of technical analysis is now evolving to take these intermarket relationships into consideration. Intermarket technical analysis refers to the application of technical analysis to these intermarket linkages. John Murphy coined the term Intermarket Analysis.

Statistical Analysis Statistics is a mathematical science pertaining to the collection, analysis, interpretation or explanation, and presentation of data. It is applicable to a wide variety of academic disciplines, from the physical and social sciences to the humanities. Statistics are also used for making informed decisions in all areas of business and government. Statistical methods can be used to summarize or describe a collection of data; this is called descriptive statistics. In addition, patterns in the data may be modeled in a way that accounts for randomness and uncertainty in the observations and then used to draw inferences about the process or population being studied. This is called inferential statistics. Both descriptive and inferential statistics comprise applied statistics. There is also a discipline called mathematical statistics, which is concerned with the theoretical basis of the subject.

Cycle Analysis A cycle is a rhythmic fluctuation that repeats over time with reasonable regularity. When it is sufficiently regular and persists over a long enough span of time, it cannot reasonably be the result of chance. And the longer a non-chance rhythm continues, the more predictable it becomes. The following principles of cyclic behavior have been developed at the Foundation of Study of cycles . A. Rhythmic cycles are a characteristic of more than 500 different phenomena. B. Cycles persist without change of period for as far back as there is data. C. After distortion, cycles will revert to the pre-distortion pattern. D. Cycles of any period tend to have counterparts in other phenomena, and even in other disciplines. E. The timing of cycles suggests a geographical pattern, regardless of phenomena. F. Cycles of the same period tend to synchronize, or crest at the same calendar time, regardless of phenomena. These factors suggest that the natural world is subject to powerful forces that trigger fluctuations in various phenomena. An identical rhythm in different phenomena implies an interrelationship, or common cause. The knowledge of predictable, repetitive patterns is a valuable tool in the scientific projection of many different phenomena.

Sentiment Analysis Sentiment indicators are employed to quantify the levels of optimism or pessimism present in various markets. For example, some indicators will account for all the long and short positions on a particular exchange in order to determine a bearish or bullish market. Then there are diffusion indices based on surveys to identify percentage of bulls and bears. Other sentiment indicators include VIX (Volatility Indicator), PCR (Put Call ratio), percentage of cash to mutual fund assets ratio, consumer sentiment index, trading sentiment index, open interest volume indicator etc. Most of the sentiment indicators are used as a contrarian play i.e. if the majority is on the bullish side, the markets might have topped and vice versa. For example VIX (The CBOE) volatility Index has reached a historical low (MAY 07) suggesting high level of complacency in the market, the very reason we might be near a historical high for NASDAQ. We at Orpheus have internally developed Sentiment indicators for emerging markets like India. We use these indicators for secondary and primary confirmation of intermediate trends.

Technical Analysis is the study of past financial market data, primarily through the use of charts, to forecast price trends and make investment decisions. In its purest form, technical analysis is concerned only with the actual price behavior of the market or instrument, based on the premise that price reflects all relevant factors before an investor becomes aware of them through other channels. Elliott Waves. The Elliott wave principle, or wave principle, is a form of technical analysis that investors use to forecast trends in the financial markets and other collective activities. Ralph Nelson Elliott (1871-1948), a professional accountant, developed the concept in the 1930s, proposing that market prices unfold in specific patterns, which practitioners today call Elliott waves, or simply waves. He published his views of market behavior in the book The Wave Principle (1938), in a series of articles in Financial World magazine in 1939, and most fully in his final major work, Nature’s Laws – The Secret of the Universe (1946). Elliott said that “because man is subject to rhythmical procedure, calculations having to do with his activities can be projected far into the future with a justification and certainty heretofore unattainable.” Point and FiguresA point and figure chart is used for technical analysis of securities. Unlike most other investment charts, point and figure charts do not present a linear representation of time. Instead, they show trends in price. The aim of point and figure charting is to filter out the “noise” (unimportant price movement) and focus on the main direction of the price trend. Point and figure charts are usually used for longer term price movements. PNF can also be used to day trade by clearly identifying the key points of supply and demand. They are very effective at keeping you on the right side of the market. Point and figure charts can do a really good job to spot very good trading opportunities on a trade and trend market. Point and figure charts are close relatives to three line break, renko and kagi charts which all do not have a fixed timeframe. This makes you trade only the important moves, minor moves are discarded because of the limited gain potential.