The Four Algorithms

Perception    Commitment        Equilibrium        Sentiment

Summary

For simplicity, each algorithm is represented by a single light in Pilot.

When lit red, the algorithm is indicating that the market is overbought.

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When lit blue, the algorithm is indicating that the market is oversold.

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The more lights of the same color that are it, the stronger the respective market overbought or oversold indication. Pilot delivers real-time sentiment of any market using these four algorithms simply by displaying the lights.

Perception

The market is strongly influenced by the perceived direction of its price movement.  Pilot is unique because it is the only system in the world based on real-time sentiment and perception analysis of market participants’ activities.  By analyzing the psychology of other traders, the algorithm is able to predict whether there is an opportunity approaching and how much room there is left for price movement.

The perception algorithm predicts whether the price will converge to the trend or vice versa, effective displaying how much room there is left for price movement.  This is done by taking in all the measured cognitive indicators and applying the latest artificial intelligence to quantify and confidently report the current overall market perception.

This signal allows an overall view of whether bullish sentiment has reached its exhaustion level (overbought level) or the bearish sentiment has reached its exhaustion point (oversold level).

 

Commitment

It is a well-known psychological phenomenon that the majority of traders make their buy decisions when they believe that the price has fallen too far, too fast.  Conversely, they tend to sell a security if its price has risen too far, too fast.

These occurrences typically manifest through behavioral patterns.  For example, the increased number of order cancellations that occurs on either the bid side or the ask side of the order book.

The Commitment algorithm extracts the intent of all market participants, indicating overall commitment of the market to move in the current direction.  When lit, the Commitment algorithm is saying: “Opportunity has formed and is strengthening, stay tuned”.

 

Equilibrium

Based on the assumption that all of the processed orders on the book should result in the price movement that fairly represents those filled orders (ie. the market efficiency assumption), this algorithm calculates the difference between the current actual price level and its fair value.  

The formulae for the Equilibrium algorithm analyze price fluctuations over a 5-minute sliding window to calculate fair or equilibrium price of the monitored security.  This indicates if there is any room left for price movement in the direction of current market commitment.

When lit, the Equilibrium algorithm is saying: “The market is exhausted in the current direction that is heading, and price momentum is about to reach its limit”.

 

Sentiment

Sentiment is the state of mind of an individual or a  group of people that results from their perceptions, feelings and emotions.  The relationship between the sentient of traders and the price movement is a complex phenomenon.

Because there could be thousands of traders involved at any instant, Pilot performs real-time assessments and groups information by dividing all traders currently active into 55 unique groups, each based on its participation level and behavioral characteristics in the current market.  Pilot’s proprietary Sentiment algorithms developed over the past decade measure overall trader confidence and indicate upcoming price movement.

Once Perception, Commitment and Equilibrium confirm a trading opportunity, Sentiment indicates precise timing for entry.  When lit, the Sentiment algorithm is saying: “Now is a perfect time to enter”.

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