Quantitative Price Prediction Model
Timing is of paramount importance when purchasing an item. If buying is off by a day, a week or a month, this can make the difference between a bargain or not. The Momentum Term Strength Index quantitative model (MTSI) ascertains whether a product is cheap or expensive to buy at the present price levels.
MTSI is a new and exciting proprietary technical indicator. To our knowledge, this on-line price bargain hunting device is not available by any other providers. It is our belief that this site will become an essential tool when purchasing items via the internet and will enable clients to find good value products and save money.
Product prices move in a series of peaks and troughs. The direction of these picks and troughs define the trend of the price. Upward trends have rising peaks and troughs. Downward trends have falling peaks and troughs. A trend has three directions, upward, when demand outweighs supply, downward, when supply outweighs demand, or sideways when demand and supply are in equilibrium, John J. Murphy.
MTSI anticipates, to a degree, the trading behavior and captures the subsequent price action of two of the most popular quant strategies, namely, directional and contrarian:
- The directional is, perhaps, the most widespread strategy. These models go with the trend in prices. They find bargains if prices carry on moving in the same direction. A directional model, firstly ascertains whether prices are trending, either up or down. Then, it positions itself by buying into market strength, when the prices go up. This positioning takes place only when there is a high probability that the momentum or trend will continue further into the future. If it does continue, bargains are generated.
- Contrarian models go against the momentum or trend in prices. They profit when the price reverses in the opposite direction; usually at some important level. Instead of buying into price strength, i.e. the directional strategy, these models are buying into weakness. Their strategy is summarized below:
- Buy a decline into support,
- Buy retracements in bull markets,
- Buy overbought oscillator readings.
The strength of the prevailing momentum or trend and its duration are two of the factors taken into account to produce buying signals.
MTSI rates the strength of trends, on a scale of 0 to 100. It accounts for timing and has the ability to handle trends in multiple time dimensions. It utilizes price and time-dependence, over varying time horizons for each product. It is capable of deciphering a variety of 'price frequencies'. Price oscillations, with differing time lengths, termed paths or dimensions, emulate the price action of the products. Paths are independent of one another.
MTSI produces a term structure of trends, classified under multiple time dimensions. Each dimension is a portion of the next level-up dimension. For example, trend dimension five (D5) could be a correction on trend captured by dimension D10. Dimension D10 may have rising peaks and troughs, whilst D5 may have falling peaks and troughs.