The S&P 500 has entered a new never seen before territory, passing 2900 level on Monday, and you may wonder how it is possible that r.Virgeel may forecast something that it has never seen before. You have to know that neural networks, if applied to a well designed model, have the ability to generalize, a typical human behaviour. To generalize means to derive or induce a general conception or principle from particulars: in r.Virgeel's case, it means that it has enough experience (past data and training) to digest never seen before values and produce a reliable analysis. Aside the confirmation that the model that forms the foundation of r.Virgeel is well shaped, another interesting observation regards the fact that this is a further demostration that the market has an inner hidden structure and any random walk model is rubbish. The fact that humans are not able to see this structure is not relevant, when you have such a tool as artificial intelligence brute force.

Artificial intelligence is for lazy investors and this for two orders of reasons: it reduces the frequency of trading actions and it relieves you from the necessity of having an opinion. Any of our action requires an opinion and, in trading, our opinions are, usually, like TNT in the hands of a chimp. A lot of opinions to have, on gold, on oil, on the stocks, on the banks, on EVERYTHING!! I Must Have A Correct Opinion On EVERYTHING! Otherwise I Will Lose Money! In fact, it ends up that we lose money, confidence, respect, with rising tensions and crisis of any kind around, and still we have a very confused opinion on something, ignoring all the rest.

Lately, I came across a weird and disruptive idea: some scientists that study the human mind have determined that we do not see what "enters" into our eyes, but instead we "project" through our eyes what our brain is expecting to see. Some scientists call this holographic reality and this process can easily explain some difficult-to-be-accepted aspects of our common experience, as we often do not see something unexpected, or, on the opposite, see just the details we already know (in a person, in a picture, in a text or in an event). No need to say that if you apply this process to the trading and investing activity it is somehow explosive: yes, we all project our knowledge of the markets into our expectations and then we fund on our opinions to trigger decisions. And we all make mistakes, as our decisions are what we want to see in the market, what our minds project on the reality and we think that this is reality. Delusion is just behind the corner.

Today I would like to talk about waves. The markets express themselves through waves. But first, let's look at waves. When on the shore, look at waves. When I first attempted to put a neural network at work, the real first time, after having prepared the database and applied the simplest conditions possible, I was expecting a big awful inevitable crash in the code, or an anyway "impossible" error to underline that I was trying to make something not available. It passed and produced a meaningful output.

The new trainer has taken shape: it should provide a better preprocessing of the model and has just been tested. Now it will be applied to the basic SPX data to have each bar analized and ranked. More testing ahead, it is the basic process for a neural network model. This new learning model is much more rich than the previous, and I hope it will enhance the performance. The stop is the key factor for every position and is the value at which your position will be closed.

In the rising market, you are continuously convinced that a crash is imminent and this is the fuel that makes the market grow, having a lot of people on the wrong side. We are watching it in the latest months, whenever the downturn seems inevitable, the market turns up blindly, no way. If I should rely on my own analysis, I would be a net looser. Luckily, the model seems working nicely, even if with some indecisions. In latest days it has flipped from long position to alerts of an imminent turn, but it has never lost the positive attitude, it was just moving on the edge, and you have to consider that the market is in a never seen before territory. This confirms the ability of the Artificial Intelligence models to manage never seen before events, sometimes better and sometimes with a bit of indecision, but always keeping the correct orientation and pointing towards profit, in our case.

The post was not about the numbers, but about an unique opportunity that Euro based investors were facing (and are still facing). In the meantime the EURUSD has passed from around 1.095 to 1.06 and the SPX from 2140 to 2190: they sum to a nice 5.5/6 % in just one month. To subscribe to the r.Virgeel indicators, please go to the subscription page

Following my previous post "New Tools at the Horizon", one question was twirling in my mind: why the stock market is forecastable, but the forecasts are not affordable? The forecastability of the market is an evidence, because if it were not – being it just a random walk – there would not be the possibility to have an output from the neural networks that manage the forecast process. For a neural network to work, there must be some sort of structure inside tha data that can be used to produce the forecast/diagnosis. And this hidden structure is present indeed inside the market data, otherwise r.Virgeel would be totally blind and dumb. This is a sample chart of a blind network: not structure is evaluated and the output is just an array of zero values.

Here you may see an enlargement of the chart that the subscribers have receive one week ago, last Friday night (CET), with overimposed the real weekly action: r.Virgeel, in its weekly version, has nicely caught this week range and direction, shown in the rightmost bar, confirming the turn signal generated by the daily forecast. In circumstances like this, the power of artificial intelligence shows at its best, being able to provide an information that no technical analysis can even imagine. Has r.Virgeel access to reserved infos? The model is built with the numbers publicly available about the world markets and no mind reading ability has been injected in it. It is just the power of correlation and pattern recognition: if the model is correctly setup, it sees things that we humans… It's not magic.

In the late 80s, I crossed with BrainMaker, a suggestive piece of software that let you play with neural networks. I was working as an architect and I was self taught in the theory of patterns as formulated by Christopher Alexander. At a certain point, let's say beginning 90s, I was ready to take off with a language and code my own tools. Much easier to say, I finally got through a wonderful library that manages back-propagation networks. I've built many many versions of a tool, that was always showing the same definitive fault, paying the necessity to tune parameters and entering self referral loops.