OmniTrader Tips

Lesson 2: Understanding Why Signals Change

OmniTrader is a prospecting tool, and the signals that it generates are the result of a continual process of testing, optimization, and filtering.  This process will cause the signals on the vote line to change - to understand why signals in OmniTrader change, we must understand how OmniTrader generates signals in the first place. 

The Signal Generation Process

OmniTrader takes the 120 trading systems in the program and applies these systems to each security in your Focus List. The system tests are run for a specific backtest period (the default backtest period in OmniTrader is 250 trading days). The program will optimize the parameters of each system, find the most profitable systems for each security you test, and use those systems and settings to generate vote signals.

The System Testing Window in OmniTrader, showing the option to not test symbols
with current signals.

By default, OmniTrader will follow the current trade to completion.  This means that the program will not perform the backtest and optimization process again until the current trade is exited on the vote line.  Once the trade is exited, OmniTrader will go through the whole testing process again! OmniTrader updates the backtest period with current data and ignores old data, reoptimizes and reselects the systems, and then uses the new data with the new systems and settings to give you new signals!

If you would like OmniTrader to ignore the current signal and retest to find trade candidates (as specified in the 'Update the backtest every _ days' field), simply uncheck the box marked 'Don't test symbols with Signals in the Focus List' under Testing Rules. 

The Advantage of Changing Signals

Now that we understand why our signals change, we can better understand the reason behind changing signals. According to the Personality of Markets Theory, securities will exhibit different "personalities" from time to time. Trading systems will generate accurate signals for a certain personality, but what if the personality of the security changes? Obviously, the system that was being used before will not be as effective. This has been a historical problem with indicators and systems in the past, and that is why OmniTrader will update the backtest period and rebacktest the security every so often. OmniTrader's Adaptive Reasoning Model will go through the new data and find new systems and settings to generate signals based on the current personality of the security.

This is the reason you will see signals change in OmniTrader, and the reason that this change is an advantage in our program and an advantage to you as a trader.

We hope that this lesson has helped you better understand the signal generation process in OmniTrader.  If you have any questions on the topics discussed in this lesson, please write me at jdrake@nirvsys.com.

Best of luck in your trading,
Jeff Drake
Director of Education
Nirvana Systems