Saying you want to start a rethinking finance process and provide better solutions for investors is not enough, you need to give more: you have to explain exactly the reason why you are innovative!
This is why I am going to explain you the technology that supports us in our journey toward rethinking finance.
During the following posts, I will treat a fairly complicated topic in the easiest way possible, as if I had to explain it to a child. Please notify me if something is not clear enough or doesn’t really switch on the light bulb.
Before I begin, I warmly recommend to take a look at the story of Quantesys Algorithm, to have an idea of what this is all about.
Ok, let’s start!
The market is the sum of different clusters of investors, each one characterized by different perceptions and different opinions about the market trends. You can check out how we gather investors and their behaviors here.
What the algorithm does is, in simple words, reporting whenever it detects anomalies linked to investors’ irrationality: this is what creates the opportunities. But this is just the starting point my friends!
Once the alarm is turned on, it’s time to analyze the strenght of the signal and, eventually, evaluate if the future event is going to happen or not. It’s like a fire alarm: sometimes it suddenly rings, but not all the times the fire is actually burning (maybe it was just some vapor, a bit of smoke, or just a bug).
Therefore, there is a signal creation process that basically questions the algorithm few times in order to come up with a much more consistent outcome: we called it VSR (acronym of Value, Sentiment and Rational).
Now I am going to describe the first of the 3: the Value.
In a very simple way, the Value, like an expert or hunter:
- systematically scans the field with sharp eyes;
- selects the suitable “prey”;
- identifies the adequate target (don’t remember which are the different targets? Take a look here);
- and then selects the best entry price to act.
Let’s put ourselves in the hunter’s shoes and imagine the graph as a fenced hunting ground:
The outcome is pretty straight forward: the longer the distance between the price and the target, the cheaper (B) or expensive (A) the former will be.
Then, the algorithm will look at the second component of the signal creation process, the Sentiment, in order to give a Buy/ Sell suggestion.
Stay tuned and keep rethinking finance with us!
Latest posts by Alberto Ravandoni (see all)
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- The way we pursue finance innovation: there is more than meets the eyes (Pt. 3) - June 13, 2013