Archive for the ‘Primers’ category

The Portfolio Rieki

What if there was a tool which could illustrate the performance cyclicality of your portfolio? How would it help? Could this change how investments are done?

A portfolio like an asset has a performance cycle. There is an optimum peak performance for a given holding period for a certain portfolio, after which the portfolio performance reverses course. If you could see this portfolio Rieki (performance cycle) you could allocate, reallocate, hedge your portfolio, and generate higher alpha.

For example let’s take the pairs we are running. We are long Industrial Metals (AIGI), AIGE (Energy Index) and AIGA (Agricultural Index. On the short side we have Natural Gas, Coffee and Gold. We just summarized the numeric ranking values to get the long portfolio Rieki (performance cycle) and short portfolio Rieki. Net portfolio Rieki is another additive function (long Rieki minus short Rieki). All the three Rieki’s indicate how the portfolio is doing and when the optimum performance might peak and reverse. We have taken an intermediate holding period in this case.

Orpheus Time Analytics offer portfolio Rieki services.

ALPHA is a pair trading, long only - short only strategy and Numeric Ranking product based on TIME fractals. Time arbitrage, Time Triads, Time fractals are terms coined by Orpheus Research. The signals are carried over three different time frames viz. sub minor (2-3 days), minor (10-30 days) and intermediate (above 30 days). This is a daily signal product. The signals will be illustrated through tracker and running portfolios. Alpha can be used by fund managers for relative allocations, traders for leverage bets and high net worth clients for selective trades. This is a part of the time triads analytics developed by Orpheus Research.

Coverage: Forex (EUR USD, AUD USD, GBP USD, CAD USD, JPY USD, CHF USD, Yuan Rnmbi, Indian rupee, NZD USD), Energy (Crude, Natural Gas, Gasoline, Heating Oil, Petroleum, Carbon Emissions, Brent, WTM, Energy Index), Metals (Precious Metals, Tin, Zinc, Nickel, Copper, Platinum, Silver, Industrial Metals Index, Gold), Agro (Coffee, Corn, Grains, Livestock, Sugar, Wheat, Soybeans, Cotton), Thematic and Global Equity (Coal Mining Fund, Shipping Fund, Dow Industrials, Sense, Agricultural Equity, Water, Nuclear, Russell 2000, Russell 1000 USD), Bonds (US 30, US 5Y,  US 10Y, US 2Y, INR Bond Index, China Bond Index, Australian Bond Fund, Global Bond Index, Sweden Bond Index).

Performance cycles is a term coined by Orpheus Capitals. This is another name for time triads, time arbitrage, time fractals but expressed in terms of relative performance. It’s a bounded oscillator that moves in a range say from 1 to 30. 1 is top relative performance and 30 is worst performance. The idea is that performance is cyclical. A top performer will underperform in future and vice versa. A top relative performer is also the worst value pick and the top relative underperformer is the best value pick.

*This is a strategy product. Long Short strategies are not riskless strategies. Please mail us for a detailed working or consult a local financial risk manager to execute these pairs. For more details please subscribe to the ORPHEUS TIME ANALYTICS research products.

Time is a social construct and we see time through the life and nature around us. Understanding time can not only give a unifying theory to research of a few thousand years, but also help us understand the world we live in. Time evolves, oscillates and continues. Time comes before everything, but we don’t see it. We just feel it. We believe what we see and this is why understanding what we don’t see is a challenge. Understanding time could bring more than a conventional thought down, it’s a revolution, which could rock the very foundation of economic thought or the geometric structures Euclid laid down in 300 BC. We are at the start of the journey, but if time is indeed the real mathematics, we could see high accuracy in time forecasts.

Econohistory is the study of performance cycles between assets. Cycles are the generic name for time fractals. Performance cycles can be studied for any time frame, for as small as a tick data to multiyear time frames. This objective approach to performance cyclicality can explain why intermarket analysis is an area of study? Why bonds and commodities tend to be inversely related? What is the connection of Oil with world markets? Why the world watches DOW sometimes and sometimes a 500 point effect on DOW seems to have no impact? Why correlation between assets moves from near perfect at times to weak correlation at other times? Why the same news has different impact on a stock or market? Why equities and bond trend together and why the relationship decouples sometime? When will inflation become deflation, disinflation, stagflation or hyperinflation? When and why does gold outperform and underperform silver? Econohistory can objectively answer these questions, using performance cycles, time fractals and past data. Economic history is mathematical.

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Targets and Stops (003) - Fibonacci projections

Another important and broadly used target calculation tool is what market technicians call the Fibonacci projections.

Simply putting the Fibonacci ratios are used to project the end of a three legged structure after two legs are considered complete. These three legs could be a-b-c, 1-2-3, 3-4-5 or w-x-y.

These following Fibonacci ratios or projections: 0.382 (38.2%), 0.50 (50%), 0.618(61.8%), 1(100%), 1.382 (138%), 1.618(161.8%) or 2.618 (261.8%) can be applied by your local charting tool. We at Orpheus find the 0.618(61.8%), 1(100%), 1.618(161.8%) proportions very regular.

Fibonacci projections are often used in combination with other target calculation techniques to give a more precise target. The more the number of targets bunched together in a confluence the more accurate the projection, target or likely reversal.

We have illustrated this technique on an idealised price structure and Indian Industrials major L&T. We have projected the end of the C wave from the B wave low. As you can see on the chart above, the Fibonacci projections highlight key 1,950 and 2,050 levels as important Fib targets and potential reversal areas.

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Targets and Stops (002) - Key Reversal Bar

Last time we discussed the previous fourth retracement and how the method can be used as an effective tool to calculate stops and targets. Today in the second addition of targets and stops we are discussing Key Reversal bar.

The very fact that the High-Low-Close formation is called ‘Key’ attaches significance to it. From personal experience we find this formation a bit rare, it does not happen anywhere and everywhere. And because it’s not that common also makes it useful. KR is not your everyday reversal signature.

So what is the formation? This is a trend reversal formation. An uptrend exhaustion of sub minor (few days), minor (<3weeks), intermediate (>6 weeks), primary (> 9 months) etc. could see a KR. After an uptrend, a new high, a higher high, if markets close below the previous close, a KR is formed. The idea is simple, the bull energy has been capped. Indicator failure is a reality and KR is no exception but KR’s have an amazing strike rate.

Even among KR’s there can be varying potency. Heavier down volume, deeper close compared to the previous close, KR at key resistances can add reversal strength to the formation. And without doubt as we move up in degree, KR attains more reversal strength. A KR on monthly is stronger than a KR on weekly prices and so on. One could even combine KR signals. A KR on monthly accompanied by a KR on weekly and or daily could make a stronger negative case.

We have illustrated the Indian Nifty daily potential KR case. If prices close Friday (23 July) below 5,441, we have a KR. This daily KR is not accompanied by a weekly or monthly KR, but it does come at a key resistance. 5,441 is the level to watch for the KR to work.  Let’s see.

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Targets and Stops - Previous fourth retracement

One of the most effective target calculation techniques is based on the previous fourth retracement. According to Elliott, prices move in a five wave structure and after completing such an impulse, prices tend to retrace at least till previous fourth levels. This is why after a peak or bottom, the respective levels become an important target to watch. We illustrated here an anticipated and happened case related to the previous fourth retracement on the Indian market.


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Equities vs. Gold

It is very tough to understand cyclicality, as it goes against conventional belief, which comes from the society. Hence seeing cyclicality, appreciating it, comprehending it needs courage to see what everyone can’t see. What if you are wrong? What if the society is right? What if….?

This is another reason why Gold should underperform Equties. Gold the winner, the outperformer should underperform…

Source: www.businessinsider.com

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The 'I saw it first' illusion

People can fight for credit. They can even kill for it. There is an old joke of two amateur chartists fighting over a credit regarding who spotted the head and shoulder first. At Orpheus we consider head and shoulder the pattern of time. So if you look at price you will find head and shoulder anywhere and everywhere. The credit is an illusion, a behavioral bias. There are HNS formations that work and there are HNS formations that fail. You may not want to believe this but only 20% of HNS work. The 80-20 rule even works here. 20% of potential patterns deliver 80% of the returns. So if you can’t differentiate or isolate one HNS from the other, or the winning cases from the failures, you are fighting for a lost cause. The DOW case here illustrates a failure HNS along with potential winners.

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Continuation head and shoulder or Elliott Triangle

A continuation Head and Shoulder pattern could also be a looked as a triangle. A similar pattern of conventional head and shoulder of a five legged 3-3-3-3-3 (a-b-c-d-e) triangle was present in Nifty during the fall from May 2008 to Oct 2008.

Vivek Marne is currently working with BDO Consulting in Oman, providing services in determining new business opportunities for various clients to understand markets and companies and identifying ways in which clients can become high-performance businesses. He has worked previously with KPMG (global risk and compliance services of manufacturing companies in India) and with Irevna – Division of CRISIL (fundamental analysis of Information technology companies). Vivek is passionate about Technical Analysis, a self taught Elliott Wave Technician. He conducts technical analyis on a variety of financial instruments on his blog vivekoutlook.blogspot.com. He covers WAVES Metals for Orpheus Research.

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Continuation Head and Shoulder Fractals

Fractals (similar price patterns) are not about same asset they can also be about different region, different assets, different time. This is a potential continuation head and shoulder formation seen in India and Romania. This case was carried in TICKS INDIA.

13.07.10 11:00 BSEMETALS. DAILY. Don’t get tricked by conventionalism. It’s everywhere. Understand the Elliott structure that it’s the nature of correctives to decay time and that ‘Head and Shoulder’ is formation of time. You can find it everywhere. What’s important is not to just see a ‘HNS’, but to understand which one would resolve and when. If you look at multiple assets, you can easily see markets from different regions making a continuation ‘HNS’. Now this we think will resolve lower to new intermediate lows below 14,000.

The above image is the Romanian BETFI with a continuation variety potential Head and Shoulder.

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Investment Psychology

The Contrian Cioban

The contrarian ‘Cioban’(Romanian for Shephard). We bring to an end a very interesting aspect on contrary opinion today. Next week we will discuss on how to invest on the basis of contrary opinion. To sum up some previous write ups, we discussed how market inflates and make bubbles and some historical bubbles. We tried relating these investment psychology aspects with the Romanian market. And as we delve week over week in the investment psychology, which drives market, the more convinced we get that what drives markets globally drives prices locally.

Pride goes before a loss

Pride Goes Before a Loss. “Pride of opinion has been responsible for the downfall of more men on Wall Street than any other factor”. These were the words of Charles Dow, the man who gave the word its first Index and the man who founded ‘The Wall Street Journal’. Building on Objective and Independent thinking, the sentiment theorist also understand the need to be humble. He is clear about the fact that markets are supreme and he should try to not have an ego equation with the market. It’s a recipe for disaster.

Independent Thinking

Independent Thinking. Despite the difficulty to be Objective, which is easier said than done, one should try to be as much impartial as possible. For the most part, exogenous factors have an unhealthy effect on our emotions, distracting us from clear and independent thinking. As such they represent a major obstacle to achieving our investment goals. The obvious solution would be to move to an isolated part of the world, turn off all communications and never read a newspaper. In this way we would never have our views distorted by events and outside opinions. But then it’s not a very practical solution.

How to be objective

How to be Objective. After the “Holy Grail” that we discussed last time highlighting that there’s no perfect tool and no formula that can make you quick rich, today we talk about another aspect of investment psychology. It deals with one’s own self. There are no certainties in the investment world, and where there are no certainties, one should begin with his own self. Since emotional commitment accompanies actual investment biases and prejudices are bound to creep in. A successful investor realizes this and tries to maintain psychological balance through self control. A self control that helps him/her keep a mental balance and avoid most of the noise from news, gossip and sharp changes in price that can set nerves quivering and emotion shivering between the two extremes of fear and greed.

There is no holy grail

There is no Holy Grail. Picking up the thread from where we left last time, the sentiment theorist is a kind of contrarian and someone who understands investment psychology. And the first step in investment psychology is knowing yourself. One who understands himself understands the dynamics ofmass psychology. As its mass psychology thatmakes markets.

The sentiment theorist

The Sentiment Theorist. We had have many theories till now covering every aspect of our life and about every detail. Theories which we read at school, and theories we had to cram for exams, theories on management and then theories on market. Every one of us has a theory, an explanation, of how we think something works or should work. Well! many of these theories are true and profound, the scientific theories specially. It’ s the theories of market which I will try refuting in these weekly columns using an odd sounding sentiment theory.

Patience is a profitable virtue

Patience is a Profitable Virtue. Last time we talked about the Pride and how it leads the loss a player incurs in the market. Today we discuss “Patience” and its related virtues. This is the penultimate part of mastering yourself before you take on the market.

Bubbles come and go and come again


Bubbles come and go and come again. There is something fascinating about human psychology. It is cyclical. Bank failures and manias mark the history of markets on a cyclical basis. What ever the regulators may do to control frauds, they invariably happen with a cyclical accuracy. The reason being that human behavior is patterned and mass psychology moves from confidence to optimism to greed to fear to panic and then back again. Today we continue the part with the contrarian approach and discuss some historical cases of market bubbles.

How does the bubble inflate?

After discussing about the reasons and techniques to master yourself today we start another aspect of investment psychology. This part as Martin Pring would define belongs to the learning’s from the street, the Wall Street in USA, the Dalal Street in Bombay or the Strada Carol I Boulevard BVB as Romanian traders would like to put it.

Staying the course

It really does not matter whether you are a trader or investor. The problems are the same. Only time horizons differ. Sticking to a plan is tough, as people, developments and psychological hurdles ar ready to trip us at the first opportunity. Though important to stay course, its also important to be flexible. Being flexible makes sense if bases of change lie in underlying economic conditions and not a comment by a broker, news or some unexpected news event. In the latter case, the change is internal not external.

Introduction

The smart investor is mostly a contrarian and someone who understands investment psychology. And the first step in investment psychology is knowing yourself. One who understands himself understands the dynamics of mass psychology. As its mass psychology that makes markets.


TICKS - Accuracy on 1 minute charts

Pattern watching can not get more comprehensive than this in stock markets. We don’t just talk about charting and delivering accuracy on 1 minute charts, we at Orpheus actually do it. These are abridged (almost 50%) versions of what TICKS Intra day services cover in a month for India, Romania and Global assets. We have also enclosed a brief primer.

TICKS.PRIMER.ANTICIPATED AND HAPPENED CASES.2009
TICKS.PRIMER.AND.CASES.2009
TICKS.INDIA.DEC.2009
TICKS.INDIA.DEC.09
TICKS.INDIA.JAN.2010
TICKS.ROMANIA.JAN.10
TICKS.ROMANIA.JAN.2010
TICKS.ROMANIA.JAN.10
TICKS.ROMANIA.DEC.2009
TICKS.ROMANIA.DEC.09
TICKS.GLOBAL.DEC.2009
TICKS.GLOBAL.DEC.09
TICKS.GLOBAL.JAN.2010
TICKS.GLOBAL.JAN.10

TICKS.GLOBAL covers DOW, GOLD, SILVER, OIL, EURUSD, DAX and other global assets and futures on an Intra day basis. The reports are published through a self refreshing webpage. TICKS.GLOBAL is a web based service it is only available through the Orpheus Site.

The best part, it is running free now. To access the report click here.

To access sample report click here TICKS.GLOBAL.1009