An Engineer observes ….

• They do not have direct expertise in the stock market

• They are first and foremost problem solvers.

• Stock markets behave like a chaotic system, need to find “order”

• Reactions to events can be illogical and contradictory

• Easier to identify short-term trends than long-term

• There is far too much data and opinion available – which of it is useful?

• If there was a “magic” formula to trading, would an expert not have found it by now?

• Anything that has happened before is possible.

 

So….

• A systematic approach to trading is needed.  This must be repeatable and data-based.

• Change the emphasis from predicting what will happen to measuring what is happening now.  Use this information to identify the start of short-term trends

• US markets have 5000+ securities – reduce this to a watchlist of manageable size (noise factor).

• Backtest the S&P 500 to identify the key fundamentals, technicals and other data.  Use this info as the framework for algorithm design.

• Collect and track the output from all algorithms in real-time. Organize it so it is clear and readily accessible.

• Monitor changes in data sets.  Identify a repeatable method for identifying changes.

 

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The result is a multiple participant, multiple criteria complex decision making system in the form of an Excel spreadsheet.

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