Hi YXI friends,

A question I often get is how to synthesise the results of the model signals vs the technical charts? The problem is that there are two approaches that may often disagree with each other.

Technical analysis, whether it’s the Elliott Waves or classical tools and indicators, is inherently subjective. Its accuracy and interpretation will vary by the analyst. You can think of it as a sword vs the swordsman.

The ML models incorporate more factors than price technicals alone, examining the impact of cross-asset behaviour as well, while carefully weighing all factors against each other. They are more objective, BUT, they are models after all. No models will be right in all market regimes, all the time. Even the best of the best - Renaissance Technologies - suffered a down year in 2020, when pretty much every style and factor went through the roof by the end of the year.

That is to say, we should take a pinch of salt for all analytical approaches. What I have found most useful is having the ML models tell me which factors (e.g., oil, gold, momentum) are key risk considerations for each asset in the current environment. They often are more encompassing than my own focus.

It is also useful to visualise price movements on a chart to spot a clear pattern of trend vs mean-reversion behaviour, which adds a lot more colour to the 1s and 0s. Sometimes, when you look at a chart, and it’s clear as day and night whether it’s bullish or bearish. And that’s invaluable.

I am continuing my background work to ensure that our current model is robust, and there will be more models to cross-check each other’s work, too.

Housekeeping: I am away Thursday, Friday, and Monday. Signals will continue as usual, but there will not be briefings on these days.

DISCLAIMER: This newsletter is intended for educational purposes only. Any information or analysis in this note does not constitute an offer to sell or a solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice, nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

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