Are We Ready For The Second Wave?

What impact will a second wave of COVID 19 have on fractalerts’ programs?

Over the last two weeks, we’ve probably been asked this question 10-15 times. Each time, we’ve answered with a simple “none”. But upon reflection, the answer is actually a bit deeper and more long-winded. You’re going to get the long-winded version now.

So what's the deal?

First, we need to start by identifying what our programs are looking for and how they identify patterns.

1. Price and Volume

We absorb two sets of data. Price and Volume. These two sets of data represent two columns of numbers from every tick for the entire history of a market. For some, that dates back to the early 2000s. For others, this data set goes back to 1910.

2. Momentum

These two columns of numbers are then used to identify momentum (mathematically referred to as Delta), and it’s second derivative (Gamma). Delta is the rate of change of data while Gamma is the rate of change of Delta. Momentum then becomes the third column of numbers which clearly identifies the rate of change of columns 1 and 2 (Price and Volume).

3. Time

The fourth column is Time. This column refers to the amount of time we have already been in a pattern. The longer we have been in a pattern, the more likely that pattern is coming to an end. The fresher the pattern, the more weight is applied to this column to give things time to develop.

4. The Mathematics

These four columns are then run through a series of mathematical formulas we have already discussed in detail… so we won’t bore you with them again. If you really want to go deep and read about this process again, please refer to the recent blog about Gauge theory and this other one about Chaos theory (where we specifically list the formulas we use). Once run through our programs and formulas, about once a week a new pattern is found. This pattern then results in an alert and thus a new trade the following day. And the process repeats itself.

Now, during that process, what exactly are our programs looking for?

They’re looking for repetition in enormous sums of data. Repetition may be related to the way price flattens out while volume and momentum slow down at the same time a pattern is nearing exhaustion. Repetition may show up as rapidly moving prices during a period of low volume and no momentum. The possible combinations are nearly endless.

But within those combinations exist the possibility that the current exact scenario has happened before… somewhere in the past and deep in the data. If it has, fractal theory, gauge theory, electromagnetic theory and chaos theory all suggest there is a high likelihood that pattern will behave again exactly as it did before.

So, what impact will a second wave of COVID 19 have on fractalerts’ programs?

The answer lies in the data and more specifically how that data moves as a result of any major event (short term or long term). Typically, major economic events impact the downside of major markets more so than they do the upside. But in smaller less related markets such as Cocoa or Hogs, these major events have nearly no impact.

When using pattern recognition software, the wider the pattern, the more identifiable it becomes. The more exaggerated the scenario, the easier it is to clearly identify a pattern and replicate it. So, when major market events shock the market into wider, more exaggerated moves, our programs take advantage of that situation.

A second wave of COVID 19 or any other major market impact will very likely widen the daily range of most markets. Wider ranges mean more identifiable patterns. Our programs are ready (and they can’t catch COVID 19… so that’s a good thing).