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The Four Key AI Trading Signal Algorithms In Detail
8totrade’s Algorithms
8totrade is designed with four main algorithms that work together to indicate buying and selling opportunities based on artificial intelligence to help you make trading decisions confidently and reliably.
The main driving force of the markets is the psychology of traders participating in the market. 8totrade monitors the activities of market participants and uses advanced artificial intelligence to learn and gather insight into the psychology of traders in real time. Our algorithms splice the market into four distinct psychological manifestations that are exhibited by traders and their behaviour.
Perception Commitment Equilibrium Sentiment
These algorithms are designed to identify when certain psychological situations are manifested in the market and to indicate when a trading opportunity is taking place. Each algorithm is represented by a light in 8totrade:
- When red, the algorithm is indicating a good time to sell
- When blue, the algorithm is indicating a good time to buy
The more lights that are lit (of the same colour), the stronger the trading opportunity.
When using the app, you can see the four lights on every security you are watching. Here is snapshot of what it looks like on the trade screen and on the watchlist:
Perception
The market is strongly influenced by the perceived direction of its price movement. 8totrade is unique because it is the only system in the world based on real-time sentiment and perception analysis of market participants’ activities.
By analysing 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, effectively 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 analyzes 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 sentiment of traders and the price movement is a complex phenomenon.
Because there could be thousands of traders involved at any instant, 8totrade performs real-time assessments and groups information by dividing all traders currently active into 55 unique groups, each based on its participation level and behavioural characteristics in the current market. 8totrade’s proprietary Sentiment algorithms developed over the past decade measure overall trader confidence and indicate upcoming price movement.
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