Here's the scenario: A few days ago, you received a Long Signal on a stock. You studied the chart and decide that this is a good trade opportunity and placed a trade. Well, today you run your To Do List, and lo and behold, the original buy signal has changed! Why would this happen? Did you do something wrong? Is your software operating properly? How do you know when to get out of this trade?

These are all valid questions. First of all, no, you did not do anything wrong, and yes, your software is operating properly. 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 signals to change - To understand why signals in OmniTrader change, we must first 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.

OmniTrader will use these systems and settings to generate vote signals until it is time for the program to run the backtest again (the default setting for the backtest to run again is 20 trading days). When OmniTrader runs the backtest again, it will go through the whole 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!

EXAMPLE: Last night you ran your To Do List on security XYZ and OmniTrader gave a new Buy Long Signal. Tonight you run your To List on XYZ, and OmniTrader shows that it has been in a Short Trade for 21 days. OmniTrader has rebacktested the data for XYZ, found more profitable systems and settings for the new backtest period, and has used those systems and settings to generate your new signal.

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