Supply, Demand and Market Timer

Introduction

When we started Strong Market we had one goal: Create the very best tools for traders in the world based on a proprietary, world-class market timing system.

“What Market Timer does is MEASURE. It measures supply and demand. It does it accurately and effectively so that traders and investors can make informed decisions. Chart reading and interpretation of charts is subjective. One person might see a ‘head and shoulders’ pattern another sees a ‘pennant’, yet another might say it’s a ‘broadening’ formation… trying to trade on charts today is a bit like watching a painting that’s not finished yet and still being painted. It’s very open to interpretation at each stage of its creation.

Looking at DATA and NUMBERS generated by signals from Market Timer is OBJECTIVE information.

Numbers do not lie. Numbers can’t be seen for anything else than what they are. They tell you what is really happening.” – David Vallieres, developer of the Market Timer System and CEO of Strong Market

Background

David Vallieres, the creator of the Market Timer system, started trading in 1974 at the age of 16 on his father’s account. He was hooked when he doubled my money on his very first investment. At 19 he started his first publishing business called CARS, an Autotrader type of classified newspaper for cars distributed locally. At 22 he started a novelty toy manufacturing business. Just after getting married a few years later he started trading options buying long bull call spreads on the OEX index. From March to July 1987 he doubled his trading account at Kidder, Peabody & Company (the best options broker at the time). He felt the market was about ready to decline and purchased $16,000 worth of puts on the OEX in July 1987. Alan Abelson, the editor of Barron’s wrote in an editorial that week stating (paraphrasing) “a retail investor bought $16k worth of puts so the market will continue to go higher”. He used Dave’s trade as a ‘contrarian’ indicator. On October 19, 1987 the market declined 22% (still the record for a one-day percentage decline in the market). However, his puts expired in September and he lost his entire bet. That did not stop or deter him. He continued to study the market intensely.

After 4 years of college and a few years traveling and odd jobs, he become a consultant and advisor to Raymond Flynn, Mayor of the City of Boston, MA in the early 1990’s on community development projects. After 2 years in Boston he moved back to central NY where he grew up. He got married, raised four children and spent a total of about 15 years in public service. He was the as CEO of two separate not-for-profit community development agencies in central NY, one after the other, overseeing millions of dollars in public funded projects. After a few years in those positions, he received a call from the mayor of the city he lived in and was appointed Director of Economic Development and Deputy Commissioner of Housing and Urban Development. He left public service to start an internet publishing business in 1999. Over the next several years he made millions publishing online. In 2008 he semi-retired and has focused only on trading.

The Discovery and Early Success

In 1992, while living in Boston, he discovered a high positive correlation of certain market data to daily changes in the S&P500. He based his research one idea: Either the market is a true representation of supply and demand for financial assets, or it is not.

He proceeded on the assumption that supply and demand were the primary drivers of price discovery and began a journey that lasted the next 27 years.

At the time he started his research (1992) he used paper spreadsheets over a kitchen table to record daily market movements, internal market data and run his formulas. In 2008 he used the basic formulas he discovered in 1992 in real-time trading on the ThinkorSwim (TOS) platform. In April of 2009 he made his largest one-day real money gain ever in the markets – $47,692. He created a detailed report with screenshots on the trade: You can download the PDF here.

About that same time (2008) Tom Sosnoff, the creator/owner of TOS, and Dave talked occasionally about trading after hours. Dave thought that creating a script to run on the TOS platform was the perfect way to test his basic system in real-time. He learned the basics of ThinkScript (the native TOS language) at that time and created my first script for the ThinkorSwim (TOS) platform. This was years before TDAmeritrade purchased the rights to the platform. He also noticed about this time that chart patterns failed more often than they did pre-2008.

He made extensive use of Thomas Bulkowski’s Encyclopedia of Chart Patterns as a guide to his technical analysis in the markets but in 2010 Bulkowski wrote an article in Stocks & Commodities magazine that confirmed his suspicions: High frequency trading algorithms and QE injections by the Federal Reserve had changed the success rate of most chart patterns and they were failing more often. Years earlier, he had put all his formulas onto an MS Excel spreadsheet.

He started to look at different ways in which he could extract new insights from the formulas and data he was using. He had been following James Harris Simons, a legendary mathematician, who ran one of the most successful hedge funds in history, Renaissance Technologies. Jim Simons was very successful in the market and is reporteldy worth $21 billion. Simons is extremely quiet about his quantitative methods and algorithms used. In a rare interview (you can find it here on YouTube) he says that his algorithms have one purpose: To find market anomalies and capitalize on them.

This quote from a New Yorker article (https://www.newyorker.com/magazine/2017/12/18/jim-simons-the-numbers-king) was especially interesting to Dave, “Renaissance has had an unprecedented run. Bloomberg Markets, in an article last year, called the firm’s signature product, the Medallion Fund, ‘perhaps the world’s greatest moneymaking machine.’ For nearly three decades, it has gone up by eighty per cent annually, on average, before fees. Renaissance’s other, bigger funds have done less well. Simons said that this is a consequence of their size: large amounts of money cannot be traded as quickly, and longer-term trading makes algorithms less useful. ‘It’s like the weather,’ he says— ‘the nearer in, the higher the certainty’.”

He never met or talked to Mr. Simons but he read and watched everything he could find on him – which was not much. But he understood what he was saying in the quote above. And he started to dive into what he had discovered in 1992 in more detail.

The Next Breakthrough

It took few years, but in the summer of 2017 he made some breakthroughs and developed his formulas further and created algorithms based on relationships he saw in the data on multiple layers similair to a neural network. This ‘breakthrough’ became the second iteration of the system he uses now called ‘Market Timer’.

Dave created all the algorithms used in the Market Timer system starting in 1992 on paper. In 1993 he converted them to Excel and in 2002 to Thinkscript for ThinkorSwim (TOS). He created one original script in ThinkScript (ThinkorSwim’s native programing language) in 2002 which was the first iteration of the system.

At the end of 2018 he completed 2nd iteration algorithms which are now on the Market Timer spreadsheets. Also in 2018 a Market Timer subscriber from Aruba, had contacted me and wanted to learn more about the algorithms and help the development. Almost immediately he started on converting the algorithms Dave created from the Excel spreadsheet into scripts that run on the TOS platform. He then converted the final code to TradeStation on the scripts based on columns on the spreadsheet.

Most of the scripts we have creatd have videos demonstarting and illustrating their use which can be found on YouTube:

https://youtu.be/zyPij4zwVPw (installing & customizing TOS scripts)
https://youtu.be/14kc8llBcLs (demo trading with Strong Market Tick chart scripts)
https://youtu.be/KGX3UzYcZAk (demo trading micro e-minis with scripts)
https://youtu.be/8eO8RBy-BYM (demo tick charts scripts & intro)
https://youtu.be/7BZd6SrmMiA (Intro to new Market Timer dashboard)
https://youtu.be/Zmw5aZ5zokI (demo day/swing trading w/scripts)
https://youtu.be/PWEkSFbTh7A (demo day/swing trading w/scripts)
https://youtu.be/jfrWwRmNPZ8 (client review of Strong Market scripts)
https://youtu.be/kiE2raJWbTA (SD/ST scripts demo)
https://youtu.be/fzv7nsmI0s8 (demo live trading w/scripts)

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