Blog - Investing Notes

September 15, 2005 – Reader Question on a Market Forecasting Product

Reader Dennis in Sioux Falls SD recently posed the following question:

"Have you studied VantagePoint software from www.tradertech.com?"

The offeror of this software (Market Technologies, LLC) claims: "With nearly 80% accuracy, VantagePoint Trading Software gives you the edge you need when trading Futures, Commodities, Forex and ETFs. When you use VantagePoint market forecasts, you will no longer feel the stress of chasing marginal trends and spending countless hours buried in analysis without being rewarded for your efforts." We have not previously looked at VantagePoint but did so after receiving the above query. The promotional material available on www.tradertech.com regarding how the software works is thin, so there is not much publicly available information to study. Parsing the offeror's disclaimer is somewhat helpful, as follows:

Disclaimer Statement: "THE NEURAL INDEX PREDICTS WHETHER THE AVERAGE OF TOMORROW'S CLOSE AND THE CLOSE OF THE DAY AFTER TOMORROW (BOTH UNKNOWNS AT THIS TIME) WILL BE HIGHER OR LOWER THAN THE AVERAGE OF YESTERDAY'S CLOSE AND THE CLOSE OF THE DAY BEFORE YESTERDAY. THIS GIVES THE EXPECTED TREND DIRECTION FOR EACH MARKET OVER THE NEXT TWO DAYS."

This is a modest look forward, apparently with no outlook on the size of any moves. There is not enough information presented on the web site to verify or challenge the accuracy claims of nearly 80%. However, even when such predictions are accurate, they would not be tradable when the moves are small.


Disclaimer Statement: "...THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ...THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN...ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS."

The first two sentences here shift accountability from the VantagePoint software to the buyer and make us wonder just how successful the average user has been with actual trading. The second sentence makes us wonder what are the other factors that cause divergence between actual and hypothetical (advertised) results, and how large are the adverse effects.


Disclaimer Statement: "MARKET TECHNOLOGIES, LLC HAS HAD LITTLE OR NO EXPERIENCE IN TRADING ACTUAL ACCOUNTS FOR ITSELF OR FOR CUSTOMERS. BECAUSE THERE ARE NOT ACTUAL TRADING RESULTS TO COMPARE TO THE HYPOTHETICAL PERFORMANCE RESULTS, CUSTOMERS SHOULD BE PARTICULARLY WARY OF PLACING UNDUE RELIANCE ON THESE HYPOTHETICAL PERFORMANCE RESULTS."

This statement makes us wonder why the offeror's management does not use the software themselves to make lots of money. We conclude that, for someone who knows the software well, it is easier to make money by selling it than by trading with it.


Disclaimer Statement: "MARKET TECHNOLOGIES, LLC MAY GIVE PRODUCT CREDITS/REBATES OR PAY FEES, INCLUDING REFERRAL FEES, UNDER CERTAIN CIRCUMSTANCES, TO CLIENTS OR OTHERS, INCLUDING DATA VENDORS; COMPETITORS; AUTHORS/WRITERS OF REVIEWS AND/OR PROMOTIONAL OR TECHNICAL ARTICLES MENTIONING, HIGHLIGHTING OR PROMOTING THE SERVICES AND PRODUCTS OFFERED BY MARKET TECHNOLOGIES, LLC; OTHERS WHO ASSIST IT WITH PROSPECTIVE CLIENTS BECOMING CLIENTS; AND OTHERS WHO PROVIDE MARKET TECHNOLOGIES, LLC WITH 'LEADS' OR NAMES OF PERSONS OR TRADERS WHO SUBSEQUENTLY BECOME CLIENTS OF MARKET TECHNOLOGIES, LLC. MARKET TECHNOLOGIES, LLC MAY RECEIVE PRODUCT CREDITS/REBATES OR FEES, INCLUDING REFERRAL FEES, UNDER CERTAIN CIRCUMSTANCES, FROM OTHERS, INCLUDING DATA VENDORS, COMPETITORS, AND OTHER ENTITIES WITHIN THE FINANCIAL INDUSTRY OR NOT, WHO PROMOTE PRODUCTS AND SERVICES WHICH MAY BE OF INTEREST AND BENEFIT TO MARKET TECHNOLOGIES LLC'S CLIENTS AND IN WHICH MARKET TECHNOLOGIES, LLC PROVIDES ITS CLIENTS WITH PROMOTIONAL INFORMATION AND DETAILS ON THE PRODUCTS AND SERVICES OF OTHERS FOR WHICH MARKET TECHNOLOGIES, LLC MAY RECEIVE SUCH PRODUCT CREDITS/REBATES OR FEES."

These statements are a bit puzzling. Apparently, Market Technologies, LLC gives or receives cuts on cross-referrals from/to entities such as data vendors. It makes us wonder how much the data costs -- it seems you are not done paying after you buy the VantagePoint software.

The offeror presents an example showing a predicted channel for the S&P 500 index, with actuals tracking within the channel. When looking only a day or two ahead, it is pretty easy to apply simple statistics and historical data to define an upper and lower bound. Two standard deviations around the historical mean daily change should capture about 96% of day-ahead results. The offeror does not supply enough information to judge the tradability of the VantagePoint software projections.

As you can tell, we are skeptical. We would not buy the product without a lot more information on actual, statistically meaningful trading results. The offeror probably would not give, or does not have, enough such information to sell us. Our expectation regarding other short-term market prediction software is similar.

If any readers have real-world trading experience, good or bad, with commercial market prediction software, we would like to hear what you have learned.

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