On equilibrium

Posted by & filed under General.

I had an interesting conversation with a chap that is into Artificial Neural Networks.  His goal is to design the ultimate ANN for share trading.  There are, as you may know, a great deal of solutions already for trading in microscopic time intervals, trying to train machines to do it.  Is is a real strategy and I guess there is money made there.  But our path is different insofar that it still involves human interpretation of the reality of the market.  But it is an interesting field none the less.  From that conversation it became clear that there were a couple of things that needed clarification on the way we designed our VIRA application.  The most contentious part of the discussion dealt with market equilibrium.  My colleague’s view of the world was that if the price of the share is trending up, then that means that there is demand for the share.  I had an uneasy feeling about that theory.  There are several ways that this may unfold.

– If we think of equilibrium then one way to look at things is that the market is always in equilibrium when the transaction is done.  So in a way it is in equilibrium and yet it moves.  So how can this happen?  Well, the equilibrium is the point in which, for that day the shares were traded at a particular price.  So there was a micro-equilibrium if you will.  But not for the entire market.  So my colleague had the right idea in thinking that if the share price is trending up then there is demand.  But for how long?  Well that is the question.

– So let’s think of the unknown part of the market then.  That is to say let’s think on the shares that were not traded, hence the ‘un-equilibrated’ part of the volume.  This is precisely what we are showing in the VIRA volume graph.  A proxy of the proportion of shares traded is the volume of shares traded for that day for that share.  So if we can keep an eye on the trend of that volume then we can have a grasp on the momentum on the market, or in other words we can infer the equilibrium, or non equilibrium of it.

– So if the share price is trending up then you may have three scenarios volume wise (at least).  We can have the volume up high too, which will confirm that there is demand for the share.  We could have the volume trending low, which means that the demand is gone for that share, and we could have just a random or expected volume of shares traded which may suggest that it is best to wait and see – depending on whether you are holding or not -.

Upgrade to iOS7 and the free version!

Posted by & filed under News.

Hello,

Here are the latest upgrades to our application.

VIRA Finance 1.2 – We just did the upgrade of the app to allow working with the new iOS7.  If you have, like me, a device that is stuck in iOS6 then the best thing to do is not upgrade to 7.

And finally!! The free version of Vira.

When we fist launched Vira in October 2013 we had it free to download for two months, and we oficially started the paid version in December 2013.  But in doing so we always felt that the free version was needed for a great number of reasons:  We need a safe way for users to get used to the app before they commit to buy; we are introducing a new analysis tool that people are not used to and so a free trial was a logical thing to do; it is easier to get promotion and disemmination of tha app; and so on and so forth.

So here is the link to Vira Finance Lite.  The only difference between this version and the full paid one (and by full paid I mean just $4.99 a pop…) is that the Lite version has a limited portfolio of shares.  All the other functionality is there.

https://itunes.apple.com/us/app/vira-finance-lite/id835468383?ls=1&mt=8

 

 

Vira 1.1.0 is here! A brief history of upgrades

Posted by & filed under News.

Here is a brief history of our Vira Finance releases so far in the Apple iOS.

1.0.0
Hello world! Our very first release, just for Apple iOS. We hit the Apple market first due to sheer economic reasons, and we learned along the way about how to and how not to put an app out there.
Then we had our first Oh s***! moment… the app crashed when presented with market indicators like Dow Jones, SP, Cac40, Nikkei, etc.  Big doo doo moment.  So back to the drawing board,

1.0.1
The market indicator crash was fixed, but indicators still couldn’t be displayed our VIRA graphs.

1.1.0
Market indicators now can be displayed in the graphs on some instances.  It is to note that some indicators have price only (not volume) so therefore just showing half the story as far as we are concerned.  But that is how they are found out there so we can’t really work around those ones.

1.X.X Coming updates…
The freebie version. We are close to

Stat test part 2. The upside potential

Posted by & filed under General, How to use Vira.

UpsideOk, lets re-visit the subject of the statistical proof ‘or tests’ that we did when developing our method.  Like I have mentioned before, I am sometimes asked to provide proof of the certainty of Viracocha.  Well I don’t possess a crystal ball, and I am prepared to argue that nobody else does.  But what we do have is a ‘sneak peek’ if you will into the present situation that is built on the momentum of the market up until now.  Viracocha takes both the Price of the stock and the Volume of stock traded into consideration.  So if we recall our fist post on these tests we had defined, these are as follows:

Test 1,1 – Low price and Low volume
Test 1,2 – Low price and expected volume
Test 1,3 – Low price and high volume
Test 2,1 – Expected price and low volume
Test 2,2 – Expected price and expected volume
Test 2,3 – Expected price and high volume
Test 3,1 – High price and low volume
Test 3,2 – High price and expected volume
Test 3,3 – High price and high volume

The -low, expected and high- buckets are based on whether the last day’s variation falls within the expected variation for that stock for the focused period of time, usually the past year or so.  So if we want to match this with the Viracocha pair of lines, then just think that the Red line is the Price and the Yellow line is the Volume of traded stock.  So we have (Price,Volume) in the test.

The Box Plot that I am showing is depicting the Price of the share as a percentage of its average, I did this only to be able to compare different shares on the same study.  So a Y-value of 1.000 on the Boxplot would mean that the Median for that test is the same as the average price for that share.  Obviously what we really want, at least if you are a reasonable trader, is to reduce your risk and to have the highest return on the trading.  And that is what I am trying to show here.

The potential, when using Viracocha, is that we could have up to 8% when identifying the low share price against the high share price.  This 8% difference is every time a trade is done.  The purpose of this blog is to try to get real examples and put them through this process and learn how to extract that value as much as possible as often as possible.

Here is the DJIA through Viracocha, that second dip there in DJIA is the Sept 11 attack by the way… I did a special study on this because that was a really unexpected event and I wanted to see how it looked through Viracocha, but more on that in a later post.  I had this one open and available so I used it to depict what those Tests I have been talking about mean for the Viracocha lines and how they relate to the explanations I have been doing – or trying to do.  This particular time series doesn’t include absolutely all the types of tests, but there is a big number of them, and you could get the idea of how this works for the ones that are not depicted I hope.  The white vertical dashed lines are the start and end of the period of time when a particular test is returning a ‘positive’ presence.  Of course there may be times when we go for very short periods from one test to the other, and the software is calculating that, but I didn’t show here on the graph for ease of representation.

Upside2

Kant and the -not-science of Economics

Posted by & filed under General.

“Whether someone’s treatment of the cognitions pertaining to reason does or does not follow the secure path of a science -this we can soon judge from the result. If, after many preparations and arrangements have been made, the treatment falters as soon as it turns to its purpose, or if, in order to reach that purpose, it repeatedly has to retrace its steps and enter upon a different path; or, again, if the various collaborators cannot be brought to agree on the manner in which their common aim is to be achieved – then we may rest assured that such an endeavour is still far from having entered upon the secure path of a science, but is a mere groping about.”
Kant in the preface to the ‘Critique of pure reason’

It is not unexpected that both Adam Smith and Immanuel Kant came out from what is now known as the Enlightenment, a term attributed to Kant himself. These tumultuous times of mankind produced some of the most revolutionary and innovative thoughts that aided human advancement. There are documents that suggest that Kant was aware and maybe even a fan of Smith’s work on ‘The Wealth of Nations’. But my understanding of Kant’s scientific rigour (and hence my urge to put in this blog) is that there is theory and then there is real science. Kant’s life work, or most of it, was to bring Philosophy from the obscure corners of myth into a proper science. I think that his preface to his ‘Critique of pure reason’ holds a lot of value if we are trying to separate what a science is from what it is not, namely the ‘mere groping about’ that he speaks of.

If I am allowed to call Mr.Smith the father of modern Economics, then let us allow him to be. But Economics is far from being a science, and it should not hold the sacred heights that our modern nations and policy makers put it up in. Smith’s views on morality, when compared to Kant’s thought may amount to merely a theory of human behaviour, a kind of Anthropology at best… but it is still groping about: It is not science. The odds of trying to model the future based on Economic theory -and being right-, are the same as the odds of a life invested in finding a living, breathing Chimera.

Adam Smith 1723-1790. Wrote ‘The Wealth of Nations’ in 1776
Immanuel Kant 1724-1804. Wrote the ‘Critique of pure reason’ in 1781

The statistical test, well… one of them.

Posted by & filed under General.

Analysis of medians for Vira Finance
Yes, I am aware of what Disraeli said about stats. But the beauty on this particular testing protocol is that it has nothing to do with all the other tests that I have seen around in the financial world. This one is coming from what I consider to be the basis of the statistical testing: That means no Candlesticks nor Kondratieff lines or ‘sophisticated’ stuff like that. This is basic stats, and as such it took some time for me to figure out the proper way to test the ever-changing data of markets.
So a bit of context, we took the data for one year for the following Australian shares (AGO, ASB, BHP, BOQ, BPT, CBA, CCL, CFX) those happened to be in our sights so that is what we used. Yes, I guess you could’ve used other shares but we did not.  The data being tested is the difference of the actual value X from the sample average expressed as a percent (%).  By doing it like that we are trying to detect if we are actually going to gain something out of this, meaning that we want the highest percentage of profit that we can get right?
Then we had to decide on the tests, namely what are the situations that we are going to call… Aha!

Test 1,1 – Low price and Low volume
Test 1,2 – Low price and expected volume
Test 1,3 – Low price and high volume
Test 2,1 – Expected price and low volume
Test 2,2 – Expected price and expected volume
Test 2,3 – Expected price and high volume
Test 3,1 – High price and low volume
Test 3,2 – High price and expected volume
Test 3,3 – High price and high volume

The -low, expected and high- buckets are based on whether the last day’s variation falls within the expected variation for that stock for that period of time. I intend to explain the maths behind that calc later, really I do! But for the time being lets just stick with the fact that there is a threshold (or sensibility) for variation and that we then put our last day in one of three buckets – low, mid (expected) or high – Well it is really one of three buckets for price; and one of three buckets for volume. If we were more sophisticated we could use the last hour of trading, or the last minute; but the app at the moment is focusing on the last day as it was a good and readily available measure.

Ok, now that we’ve established the tests and the buckets we can then interpret the results.  You won’t see four of the test in the final hypothesis (2,1 – 2,2 – 2,3 – 1,2) because of two reasons:  1)They had significantly higher values of sample sizes, meaning that they occurred a lot more times which makes sense because 2)They all involve a ‘2’ in the test; which means that they are expected or random occurrences and as such we don’t really want to take or advice to take decisions on randomness. Ok, once it was all a balanced test then we can see that the outcome of the medians test is telling us that there is at least one different median from the sampling.  Which is pretty much all that this basic test will do.  You need to have a bit more thinking on what you are seeing here.

So I can see that definitely test (1,3) is different than (3,3)… we did a one-to-one comparison after but I don’t want to bother with the details.  This means that the point in time when the (1,3 – volume was really low and the price really high) has a different median value than the time when (3,3 both price and volume are very high).  That difference is about 2% from a buy at (1,3) and sell at (3,3). The only change between those results and the advice that we are giving on the app is that there is a better sell position at (3,1) instead of (3,3) because the market could still be going up at (3,3) and we know that it is turning at (3,1) when the volume has dropped and the price has continued to go up building that momentum.

I have struggled a bit with the decision to publish this one. Like I’ve mentioned before, I am often asked to provide proof that what we put out there works, or is working, or is going to work… essentially that it is not ‘snake oil’. Well I can say squarely that 1)Our app is only 4.99 American -so therefore give it a go!; and 2)We have statistical evidence to suggest a difference in medians, among other things. I’ve struggled because I didn’t want to kerfuffle things neither come across as smug. I hope i didn’t do any of those two.

The 10 principles for a Black Swan proof world

Posted by & filed under General.

This post is about ten principles brought in by an author, professor and trader called Nassim Nicholas Taleb.  Back in 2009 thereabouts he wrote a book called The Black Swan: The impact of the highly improbable.  And here are the summaries of the 10 principles he cogitated.  I think they still hold a lot of value five years later.  We have to remember that the feelings around the table post the 2008 GFC were very passionate, specially towards the financial institutions that were just ‘saved’ by government.

So here they are, I think they have a space in this blog:

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest.

2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal.

3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system. It is irresponsible and foolish to put our trust in the ability of such experts to get us out of this mess. Instead, find the smart people whose hands are clean.

4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. Odds are he would cut every corner on safety to show “profits” while claiming to be “conservative”. Bonuses do not accommodate the hidden risks of blow-ups. It is the asymmetry of the bonus system that got us here. No incentives without disincentives: capitalism is about rewards and punishments, not just rewards.

5. Counter-balance complexity with simplicity. Complexity from globalisation and highly networked economic life needs to be countered by simplicity in financial products. The complex economy is already a form of leverage: the leverage of efficiency. Such systems survive thanks to slack and redundancy; adding debt produces wild and dangerous gyrations and leaves no room for error. Capitalism cannot avoid fads and bubbles: equity bubbles (as in 2000) have proved to be mild; debt bubbles are vicious.

6. Do not give children sticks of dynamite, even if they come with a warning . Complex derivatives need to be banned because nobody understands them and few are rational enough to know it. Citizens must be protected from themselves, from bankers selling them “hedging” products, and from gullible regulators who listen to economic theorists.

7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”. Cascading rumours are a product of complex systems. Governments cannot stop the rumours. Simply, we need to be in a position to shrug off rumours, be robust in the face of them.

8. Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is not homeopathy, it is denial. The debt crisis is not a temporary problem, it is a structural one. We need rehab.

9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement. Economic life should be definancialised. We should learn not to use markets as storehouses of value: they do not harbour the certainties that normal citizens require. Citizens should experience anxiety about their own businesses (which they control), not their investments (which they do not control).

10. Make an omelette with the broken eggs. Finally, this crisis cannot be fixed with makeshift repairs, no more than a boat with a rotten hull can be fixed with ad-hoc patches. We need to rebuild the hull with new (stronger) materials; we will have to remake the system before it does so itself. Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here, and teaching people to navigate a world with fewer certainties.

Then we will see an economic life closer to our biological environment: smaller companies, richer ecology, no leverage. A world in which entrepreneurs, not bankers, take the risks and companies are born and die every day without making the news.

In other words, a place more resistant to black swans.

 

Vira world report

Posted by & filed under General, News.

Map of Vira usage at the start of 2014

 

 

This is the world map of Vira at the start of 2014.  Much has happened since the launch of the app.  We have already released one upgrade, and there is another one to be released very soon.  We can see that Europe is starting to get visibility which is great news.

The new update has to do with the capability (or not) of Vira to process market indicators.  The very first release (1.0.0) couldn’t process indicators at all… as a matter of fact if you put an indicator it was very likely to crash!  The crash issue was fixed on our first upgrade (1.0.1) and with this new upcoming upgrade the application will be able to display the info on indicators.  Some of them only display prices though, but such is the way when that is how we find them out there and we can´t really control that.  But if both price and volume are found, then we should be able to display all the graphs.

Have a great start of the year.

 

All the best for 2014 from Vira!

Posted by & filed under General, News.

Happy new year!  After a little holiday for Xmas and New Year we are back, recharged and ready for 2014.

Once an app is put out there it is immediately in this continuous process of improvement and testing.  The new year brought a kind of black-out in Vira for a couple of days on the 2nd and 3rd of the year.  All things considered it could’ve been a bit worse; at least we had an error message and not a blue screen of death.  But it could’ve been more… elegant I suppose.  We will work on that and hopefully the next market break will not bring Vira to the “Halt of the error message”

We will continue to blog about uses and interpretations of the Vira tool here, and other bits and pieces of information also.

Have a great start of the year!

Newspaper article in El Norte in Mexico

Posted by & filed under News.

Article published in El Norte newspaper 18 December 2013This article was published in El Norte newspaper in Mexico, and of course it is in Spanish… so trust me when I say it is about us.  The newspaper is from my hometown in Monterrey, and it is more about one of their own Regios (as they call people from Monterrey) being out and about there in the world than it is of the technical intricacies of the Vira Finance application.  But it does give some details of the app and its uses.  I was interviewed through Skype a couple of months ago by the editor of the Business Section of El Norte and I had started to think that maybe it was not going to be out.  But they did publish it in the end! And maybe now it will be read by some of my old friends growing up back in Mexico and they will go: “Is that Abdel?”