Algorithmic Trading Tip: Reading a Heatmap’s Indicators


In the above table, the top line says “AAPL” which is the ticker symbol of Apple’s stock. Almost any traded asset will have a ticker identifying it. Commodities, just like stocks, are identified using a ticker symbol. Gold is represented by XAU, which is commonly traded as the SPDR Gold Trust ETF identified by the ticker GLD. Currency pairs are identified by two currency symbols, for example the USD/EUR tells us the pair refers to US dollar and Euro, however, our signals will always apply to the first currency out of the pair.

Middle Line (Signal Strength)

The signal represents the predicted movement direction or trend, and is not a percentage or specific target price. The signal strength indicates how much the current price deviates from what the system considers an equilibrium or “fair” price. The signal can have a positive (predicted increase) or negative (predicted decline) sign. The heat map is arranged according to the signal strength with strongest up signals at the top, while down signals are at the bottom. The table colors are indicative of the signal. Green corresponds to the positive signal and red indicates a negative signal. A deeper color means a stronger signal and a lighter color equals a weaker signal. As the time horizon increases, so does the signal strength. Stronger signals indicate a stronger chance of increasing in value, regardless of whether they refer to stocks, currencies, commodities, or indices.

Bottom Line (Predictability)

The predictability indicator measures the importance of the signal. The predictability is the historical correlation between the prediction and the actual market movement for that particular asset, which is recalculated daily. Theoretically the predictability ranges from minus one to plus one. The higher this number is the more predictable the particular asset is. If you compare predictability for different time ranges, you’ll find that the longer time ranges have higher predictability. This means that longer-range signals tend to be more accurate. In general, any predictability above 0.3 is an extremely high confidence level.

What is the Top 10 + S&P500 ?

One of our most popular products, the “top 10 + S&P500” is sent every daily before market opening. This forecast includes 6 heat maps, for the 3 days, 7 days, 14 days, 1 month, 3 months and 1 year time horizons. Each heatmap is sorted out according to the assets signal strength out of a pool of thousands. The top 10 signals show at the top, and the bottom 10 signals show at the bottom. The S&P500 forecast shows its signal and predictability regardless of signal strength (meaning it does not have to be in the bottom or top 10). This feature is also available for stocks, if you would like to be able to track specific assets all the time, and still receive the top 10, please fill out the contact form and we will assist you from there.

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